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Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: PAD1148
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$40 MILLION
TO THE
REPUBLIC OF PERU
FOR AN
ENHANCEMENT OF ENVIRONMENTAL QUALITY SERVICES PROJECT
December 9, 2016
Environment and Natural Resources Global Practice
Latin American and Caribbean Region
This document has a restricted distribution and may be used by recipients only in the
performance of their official duties. Its contents may not otherwise be disclosed without World
Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective as of October 14, 2016)
Currency Unit = Peruvian Sol
3.3199 = US$1
US$ = SDR 1
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
ANA National Water Authority (Autoridad Nacional del Agua)
AO Administrative Office
CPS Country Partnership Strategy
CAM Municipal Environmental Commissions (Comisiones Ambientales Municipales)
DGCA Department of Environmental Quality (Dirección General de Calidad
Ambiental)
DIGESA Department of Environmental Health (Dirección General de Salud Ambiental)
DGIIA Department of Environmental Information and Research (Dirección General de
Investigación e Información Ambiental)
DGPNIGA Department of Environmental Management Policy, Standards and Instruments
(Dirección General de Políticas, Normas e Instrumentos de Gestión Ambiental)
ECA
EPR
Environmental Quality Standards (Estándares de Calidad Ambiental)
Environmental Performance Review
EVAP Preliminary Environmental Assessment (Evaluación Ambiental Preliminar)
GESTA Technical Study Groups on Air Quality (Grupos de Estudio Técnico Ambiental
de La Calidad del Aire)
GLP Good Laboratory Practice
GoP Government of Peru
IBRD
INACAL
International Bank for Reconstruction and Development
National Institute of Quality (Instituto Nacional de Calidad)
IPF Investment Project Financing
LEED Leadership in Energy and Environmental Design
LMP Maximum Allowed Limits (límites máximos permisibles)
MEF Ministry of Economy and Finance (Ministerio de Economía y Finanzas)
MEM Ministry of Energy and Mining (Ministerio de Energía y Minas)
MINAM Ministry of Environment (Ministerio del Ambiente)
MVCS Ministry of Housing, Construction and Sanitation (Ministerio de Vivienda,
Construcción y Saneamiento)
M&E Monitoring and Evaluation
OA Office of Administration
OECD Organisation for Economic Cooperation and Development
OEFA Agency for Environmental Assessment and Enforcement (Organismo de
Evaluación y Fiscalización Ambiental)
OCI Internal Control Office (Órgano de Control Institucional)
PCU Project Coordinating Unit
PIU Project Implementation Unit
POM Project Operational Manual
PRTR Pollutant Release and Transfer Register
PSC
RSA
Project Steering Committee
Regional Safeguards Advisor
SEIA National System of Environmental Impact Assessment (Sistema Nacional de
Evaluación de Impacto Ambiental)
SENACE National Service of Environmental Certification for Sustainable Investments
(Servicio Nacional de Certificación Ambiental para las Inversiones Sostenibles)
SENAMHI National Meteorology and Hydrology Service (Servicio Nacional de
Meteorología e Hidrología)
SIAF Integrated System for Financial Administration (Sistema Integrado de
Administración Financiera)
SINADA National System of Environmental Grievances (Servicio de Información
Nacional de Denuncias Ambientales)
SINIA National Environmental Information System (Sistema Nacional de Información
Ambiental)
SNGA National System for Environmental Management (Sistema Nacional de Gestión
Ambiental)
SNIP National Public Investment System (Sistema Nacional de Inversión Pública)
Regional Vice President: Jorge Familiar
Country Director: Alberto Rodriguez
Acting Senior Global Practice Director: Julia Bucknall
Practice Manager: Raul Ivan Alfaro-Pelico
Task Team Leader: Ismael Fernando Loayza Careaga, Ernesto
Sanchez-Triana
PERU
Enhancement of Environmental Quality Services (P147342)
TABLE OF CONTENTS
Page
I. STRATEGIC CONTEXT .................................................................................................1
A. Country Context ............................................................................................................ 1
B. Sectoral and Institutional Context ................................................................................. 2
C. Higher Level Objectives to which the Project Contributes .......................................... 6
II. PROJECT DEVELOPMENT OBJECTIVES ................................................................6
A. PDO............................................................................................................................... 6
B. Project Beneficiaries ..................................................................................................... 7
C. PDO Level Results Indicators ....................................................................................... 7
III. PROJECT DESCRIPTION ..............................................................................................8
A. Project Components ...................................................................................................... 8
B. Project Financing .......................................................................................................... 9
C. Project Cost and Financing ........................................................................................... 9
D. Lessons Learned and Reflected in the Project Design .................................................. 9
IV. IMPLEMENTATION .....................................................................................................10
A. Institutional and Implementation Arrangements ........................................................ 10
B. Results Monitoring and Evaluation ............................................................................ 11
C. Sustainability............................................................................................................... 11
V. KEY RISKS ......................................................................................................................12
A. Overall Risk Rating and Explanation of Key Risks.................................................... 12
VI. APPRAISAL SUMMARY ..............................................................................................14
A. Economic and Financial Analysis ............................................................................... 14
B. Technical ..................................................................................................................... 14
C. Financial Management ................................................................................................ 14
D. Procurement ................................................................................................................ 15
E. Social (including Safeguards) ..................................................................................... 15
F. Environment (including Safeguards) .......................................................................... 16
G. World Bank Grievance Redress .................................................................................. 17
Annex 1: Results Framework and Monitoring .........................................................................19
Annex 2: Detailed Project Description .......................................................................................26
Annex 3: Implementation Arrangements ..................................................................................32
Annex 4: Implementation Support Plan ....................................................................................47
Annex 5: Economic Analysis .......................................................................................................50
Annex 6. Map of Project – MAP IBRD 33465R ........................................................................57
i
PAD DATA SHEET
Peru
Peru: Enhancement of Environmental Quality Services (P147342)
PROJECT APPRAISAL DOCUMENT
LATIN AMERICA AND CARIBBEAN
Environment and Natural Resources Global Practice
Report No.: PAD1148
Basic Information
Project ID EA Category Team Leader(s)
P147342 B - Partial Assessment Ismael Fernando Loayza Careaga,
Ernesto Sanchez-Triana
Lending Instrument Fragile and/or Capacity Constraints [ ]
Investment Project Financing Financial Intermediaries [ ]
Series of Projects [ ]
Project Implementation Start Date Project Implementation End Date
01-Mar-2017 01-Jun-2022
Expected Effectiveness Date Expected Closing Date
01-Jun-2017 01-Jun-2022
Joint IFC
No
Practice
Manager/Manager
Senior Global Practice
Director Country Director Regional Vice President
Raul Ivan Alfaro Pelico Julia Bucknall Alberto Rodriguez Jorge Familiar
Borrower: REPUBLIC OF PERU
Responsible Agency: Ministry of Environment
Contact: Marcos Alegre Title: Viceministro de Gestion Ambiental
Telephone No.: 511-611-6019 Email: [email protected]
Responsible Agency: Organismo de Evaluacion y Fiscalizacion Ambiental
Contact: Tessy Torres Title: Executive President
Telephone No.: 51-1-2049900 Email: [email protected]
Project Financing Data(in USD Million)
[ X ] Loan [ ] IDA Grant [
Guarantee
ii
]
[ ] Credit [ ] Grant [
]
Other
Total Project Cost: 70.41 Total Bank Financing: 40.00
Financing Gap: 0.00
Financing Source Amount
Borrower 30.41
International Bank for Reconstruction and
Development
40.00
Total 70.41
Expected Disbursements (in USD Million)
Fiscal Year 2017 2018 2019 2020 2021 2022
Annual 0.00 3.14 20.18 16.64 0.04 0.00
Cumulative 0.00 3.14 23.32 39.96 40.00 40.00
Institutional Data
Practice Area (Lead)
Environment & Natural Resources
Contributing Practice Areas
Proposed Development Objective(s)
The objective of this project is to generate and share information for environmental quality control at the
national level, by supporting the Government of Peru to improve its environmental monitoring and
analytical capacity, increase public access to environmental quality information, and promote informed
public participation in environmental quality management.
Components
Component Name Cost (USD Millions)
Improve Environmental Quality Control 61.42
Information Disclosure and Public Participation for
Environmental Quality Control
4.83
Project Management 4.16
Systematic Operations Risk- Rating Tool (SORT)
Risk Category Rating
iii
1. Political and Governance Low
2. Macroeconomic Low
3. Sector Strategies and Policies Low
4. Technical Design of Project or Program Moderate
5. Institutional Capacity for Implementation and Sustainability Moderate
6. Fiduciary Substantial
7. Environment and Social Low
8. Stakeholders Low
9. Other
OVERALL Moderate
Compliance
Policy
Does the project depart from the CAS in content or in other significant
respects?
Yes [ ] No [ X ]
Does the project require any waivers of Bank policies? Yes [ ] No [ X ]
Have these been approved by Bank management? Yes [ ] No [ X ]
Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ]
Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ]
Safeguard Policies Triggered by the Project Yes No
Environmental Assessment OP/BP 4.01 X
Natural Habitats OP/BP 4.04 X
Forests OP/BP 4.36 X
Pest Management OP 4.09 X
Physical Cultural Resources OP/BP 4.11 X
Indigenous Peoples OP/BP 4.10 X
Involuntary Resettlement OP/BP 4.12 X
Safety of Dams OP/BP 4.37 X
Projects on International Waterways OP/BP 7.50 X
Projects in Disputed Areas OP/BP 7.60 X
Legal Covenants
Name Recurrent Due Date Frequency
Operation and Management expenses
covenant X CONTINUOUS
Description of Covenant
iv
Schedule 2, Section V of the Legal Agreement. The Borrower, through MINAM, shall: (a) ensure that
the funds required to operate and maintain the equipment and facilities under Parts 1.2, 1.3 and 2.2 of the
Project are available, promptly as needed; and (b) shall cause OEFA to ensure that the equipment and
facilities referred to in (a) herein shall at all times during Project implementation be properly operated
and maintained.
Name Recurrent Due Date Frequency
SENAMHI Cooperation Agreement 01-Jun-2018
Description of Covenant
Schedule 2, Section I.B, para 3(a) of the Legal Agreement. For purposes of governing the assistance to
be provided by SENAMHI under Parts 1.2 and 2.1 of the Project, the Borrower through MINAM shall,
and shall cause OEFA to, not later than one (1) year after the Effective Date, enter into a tripartite
agreement with SENAMHI and MINAM (the SENAMHI Cooperation Agreement) under terms and
conditions acceptable to the Bank including, inter alia, SENAMHI’s responsibilities and obligations in
providing assistance to MINAM and OEFA under said Parts of the Project in accordance with the
relevant provisions of the Legal Agreement
Name Recurrent Due Date Frequency
ANA Cooperation Agreement 01-Jun-2018
Description of Covenant
Schedule 2, Section I.B, para. 4(a) of the Legal Agreement. For purposes of governing the assistance to
be provided by ANA to MINAM under Part 2.1 of the Project, the Borrower through MINAM shall, not
later than one (1) year after the Effective Date, enter into an agreement with ANA (the ANA
Cooperation Agreement) under terms and conditions acceptable to the Bank including, inter alia, ANA’s
responsibilities and obligations in providing said assistance under said Part of the Project in accordance
with the relevant provisions of the Legal Agreement.
Conditions
Source Of Fund Name Type
IBRD Operational Manual Effectiveness
Description of Condition
Schedule 2, Section I.A, para. 3 of the Legal Agreement. The Borrower, through MINAM shall cause
OEFA to carry out the Project in accordance with a manual (the Operational Manual), satisfactory to the
Bank, which shall include the rules, methods, guidelines, standard documents and procedures for the
carrying out of the relevant Parts of the Project, including, inter alia, the following: (i) the detailed
description of Project activities and the detailed institutional arrangements of the Project; (ii) the Project
administrative, accounting, auditing, reporting, financial (including cash flow aspects in relation thereto),
procurement and disbursement procedures; (iii) the monitoring indicators for the Project; and (iv) the
Environmental and Social Management Framework (ESMF).
Source Of Fund Name Type
IBRD OEFA Cooperation Agreement Effectiveness
Description of Condition
Schedule 2, Section I.B, para. 2(a) of the Legal Agreement. To facilitate the carrying out of the Project,
the Borrower, through MINAM, shall enter into an agreement with OEFA (the OEFA Cooperation
Agreement) under terms and conditions acceptable to the Bank including, inter alia, MINAM and OEFA
v
responsibilities in Project execution, and MINAM’s and OEFA’s obligations to carry out the activities of
the Project in accordance with the relevant provisions of the Legal Agreement.
Source Of Fund Name Type
IBRD Project Coordination Unit (PCU) Effectiveness
Description of Condition
Schedule 2, Section I.A, para. 1(a) of the Legal Agreement. The Borrower through MINAM shall cause
OEFA to (i) create, and thereafter operate and maintain until the completion of the Project, a unit (the
PCU) responsible for the management, coordination, supervision, monitoring and evaluation of the
Project, including the carrying out of procurement, financial management and safeguards aspects of the
Project; and (ii) ensure that the PCU is, at all times during Project implementation, headed by a Project
coordinator and assisted by two technical coordinators to assist OEFA in the implementation of Parts 1.2
and 1.3 of the Project, and two technical coordinators to assist MINAM in providing the assistance to
OEFA under Parts 1.1. and 2 of the Project.
Source Of Fund Name Type
IBRD Project Steering Committee (PSC) Effectiveness
Description of Condition
Schedule 2, Section I.A, para. 2 of the Legal Agreement. The Borrower, through MINAM, shall
establish, and thereafter maintain throughout the implementation of the Project, a Project Steering
Committee (PSC) with functions, powers, resources and competencies acceptable to the Bank, as defined
in the Operation Manual, including overseeing Project implementation, and providing general policy
guidance.
Team Composition
Bank Staff
Name Role Title Specialization Unit
Ismael Fernando Loayza
Careaga
Team Leader
(ADM
Responsible)
Senior
Environmental
Economist
Environmental
Economics
GEN04
Ernesto Sanchez-Triana Team Leader Lead
Environmental
Specialist
Environmental
Management
GENDR
Selene del Rocio La
Vera
Procurement
Specialist (ADM
Responsible)
Procurement
Specialist
Procurement GGO04
Nelly Ikeda Financial
Management
Specialist
Financial
Management
Specialist
Financial
Management
GGO22
Alonso Zarzar Casis Safeguards
Specialist
Sr Social Scientist Senior Social
Scientist
GSU04
Ana Luisa Gomes Lima Team Member Environmental
Specialist GEN04
Bjorn-Soren Gigler Team Member Senior
Governance
GGOII
vi
Specialist
Catarina Isabel Portelo Counsel Senior Counsel LEGLE
Cecilia Belita Team Member Operations Analyst Operations
Analyst
GWA09
Cesar Augusto Tapia Team Member Consultant GWA04
Jiang Ru Team Member Senior
Environmental
Specialist
Environmental
Management
GEN06
Juan Carlos Enriquez
Uria
Safeguards
Specialist
Senior
Environmental
Specialist
Environmental
Engineering
GEN04
Juan Jose Miranda
Montero
Team Member Environmental
Economist
Economist GENGE
Maria Luisa Castro Leon Team Member Consultant GENDR
Maria Virginia
Hormazabal
Team Member Finance Officer WFALA
Mariana Margarita
Montiel
Counsel Senior Counsel LEGAM
Momoe Kanada Team Member Consultant Environmental
Management
GENGE
Oswaldo Patino Team Member Project
Management
GTIDR
Sylvia Michele Diez Team Member Environmental
Specialist GEN04
William Reuben Team Member Consultant Consultant GSU04
Extended Team
Name Title Office Phone Location
Locations
Country First
Administrative
Division
Location Planned Actual Comments
Peru Lima Lima X
Consultants (Will be disclosed in the Monthly Operational Summary)
1
I. STRATEGIC CONTEXT
A. Country Context
1. Peru achieved annual GDP growth rates of 6.4 percent between 2006 and 2015 while
experiencing low inflation (3.06 percent on average). Growth helped Peru reduce poverty from
54.8 percent to 25.8 percent of the population between 2001 and 2012. Between 2005 and 2014,
the extreme poverty rate reduced from 15.8 percent to 4.3 percent. While inequality remains high
in the country, access to infrastructure, water, sanitation and electricity has increased
substantially due to increasing public investments.
2. Strong macroeconomic and structural reforms over the last 20 years have driven these
successes. Macroeconomic stabilization in the 1990s included the introduction of a more flexible
exchange rate regime, inflation-targeting, fiscal discipline, and continued public debt reduction.
Structural reforms covered areas such as financial liberalization, trade, and product and factor
market regulations. As a commodity exporter, Peru also benefited significantly from the
commodity boom, particularly between 2004 and 2013. Relative to other countries in LAC, Peru
used a significant part of the commodity boom for capital accumulation. Together with the
demographic dividend, this provided Peru with enough inputs to fuel growth. Total factor
productivity also contributed about a third of growth over the past 15 years.
3. In spite of this progress, Peru lags in the quality and quantity of its infrastructure. In
2015-2016, Peru ranked 69th
in the Global Competiveness Index, but only 89th
out of 140
economies in terms of infrastructure quality.1 Economic growth has also slowed, since 2014,
because of adverse external conditions and a corresponding decline in domestic confidence and
investments. However, the Government of Peru (GoP) has been proactive in their response to
these challenges undertaking structural reforms and applying a countercyclical fiscal policy to
support aggregate demand.
4. Since December 2014, Peru has had an OECD Country Program2. Through this program,
the Government of Peru (GoP) has participated in several of the OECD’s Specialized
Committees and undertaken policy and capacity reviews. One of these was the Environmental
Performance Review of Peru, which provided recommendations for enhancing Peru’s
environmental policy and management. The administration inaugurated on July 28, 2016 aims
for Peru to join the OECD by 2021. The proposed Project will contribute to generate an enabling
environment for enhanced environmental quality control and improved access to environmental
data and information that will help the nation in achieving this goal.
1 World Economic Forum, 2015, Global Competitiveness Report 2015-2016.
http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdf (last accessed on
September 11, 2016). 2 http://www.oecd.org/latin-america/countries/peru/ (last accessed on September 11, 2016).
2
B. Sectoral and Institutional Context
5. In 2012, the estimated annual cost of environmental degradation in Peru amounted to 4.1
percent of its GDP.3 Most of this cost came from morbidity and mortality as a result of polluted
air and water. Peru’s cost of environmental degradation is in the regional average (i.e., in 2014
these costs for Colombia were 3.7 percent of GDP). The GoP has attempted to address these
costs, and oftentimes has had significant success. For example, since 2001 the GoP has promoted
conversion of vehicles to natural gas in Lima and supplied clean diesel (with a sulfur content less
than 50 ppm) in areas affected by high levels of air pollution, such as Lima-Callao, Arequipa,
Puno, Cuzco, and Madre de Dios. The GoP has also strengthened its vehicle inspection system,
and prohibited the import of low-quality used vehicles. As a result, population exposure to
outdoor PM2.5 in Lima-Callao has declined by 15 percent over the 2001-2012 period4, in spite
of a 27 percent increase in population.5 The country’s successful phase-out of lead in gasoline
substantially contributed to a reduced risk of lead poisoning in the country. Peru has also made
strides in providing water supply and sanitation: between 2000 and 2012, the population’s access
to improved drinking water sources went from 81 percent to 88 percent, with an increase from
approximately 64 percent to 77 percent in rural areas alone. During the same period, the GoP
expanded the coverage of improved sanitation from around 58 percent to 67 percent of the total
population, primarily in rural areas.
6. However, the development of the Peru's general framework for pollution management
and control has been less successful. Pollution control is handled using environmental quality
standards (estándares de calidad ambiental, ECAs) to monitor and evaluate environmental
quality and maximum permissible limits (limites maximos permisibles, LMPs) to control
environmental discharges and emissions from regulated entities. The Department of
Environmental Quality (Dirección General de Calidad Ambiental, DGCA) of the Ministry of
Environment (el Ministerio del Ambiente, MINAM) is responsible for the development of ECAs
and LMPs. Several other ministries develop their own ECAs and LMPs to manage emissions in
their sectors.6 Responsibility for enforcement of these limits is handled by the Agency for
Environmental Assessment and Enforcement (Organismo de Evaluación y Fiscalización
Ambiental, OEFA). These institutions and the system for environmental quality control have
some weaknesses, which are discussed below, and the proposed Project’s primary objective is to
3 World Bank, 2016, Perú: Como reducir la contaminación y ampliar los servicios de control de calidad ambiental,
Notas De Política. http://documents.worldbank.org/curated/en/928271476428971072/pdf/109077-BRI-P160939-
Series-Perú-Notas-de-Política-2016-PUBLIC-
Cmoreducirlacontaminacinyampliarlosserviciosdecontroldelacalidadambiental.pdf, accessed on December 13, 2016. 4 Particulate matter, or PM, is the term for particles found in the air, including dust, dirt, soot, smoke, and liquid
droplets. Many manmade and natural sources emit PM directly or emit other pollutants that react in the atmosphere
to form PM. These solid and liquid particles come in a wide range of sizes. Particles less than 10 micrometers in
diameter (PM10) pose a health concern because they can be inhaled into and accumulate in the respiratory system.
Particles less than 2.5 micrometers in diameter (PM2.5) are referred to as "fine" particles and are believed to pose
the greatest health risks. Because of their small size, fine particles can lodge deeply into the lungs. 5 World Bank, Implementation Completion and Results Report (IBRD-76740/IBRD-78100/IBRD-79500) on
Programmatic Loans in the Amount of US$455 Million to the Republic of Peru for the First, Second, and Third
Environmental Development Policy Loans. Report No: ICR00001921. September 30, 2016. 6 In addition to MINAM, three other ministries have established LMPs for their own sectors: Ministries of Energy
and Mining (Ministerio de Energia y Minas, MEM), Production (Ministerio de Produccion), and Housing,
Construction and Sanitation (Ministerio de Vivienda, Construccion y Saneamiento, MVCS).
3
address critical gaps affecting the effectiveness of the Peru’s environmental quality control
system.
7. External observers have called attention to the country's limited environmental quality
control capacity: as a World Economic Forum report points out, Peru is positioned higher among
the Latin American countries in terms of aggregate environmental sustainability, but performs
poorer on indicators related to the stringency and enforcement of the country’s environmental
regulations.7 The report specifically highlights that “enforcement of environmental regulations is
quite lax, to the detriment of efforts to preserve the environment” and “pollution of water
resources, especially in areas with strong mining development … has recently spurred several
local protests in the country.”8
8. There are several areas in which Peru's environmental quality control is lacking: (a) some
environmental quality and compliance standards are absent or inadequate; (b) environmental
monitoring and analysis capacities are insufficient; (c) key environmental monitoring agencies
do not share information; (d) disclosure of environmental information is limited, and (e) there are
few channels for public participation.
9. The ECAs and LMPs are still evolving and they are incomplete to manage the country’s
environmental quality. Furthermore, the currently regulated values of ECAs and LMPs do not
adequately take into account the uncertainty associated to different measurement systems and
time coverages. As a result, ECAs and LMPs need to be expanded and, in some cases, revised to
control effectively the country’s environmental quality.
10. Another deficit is the lack of environmental monitoring networks for air and water.
According to OEFA, regular air quality monitoring is limited to major urban centers, such as
Lima-Callao, and water quality monitoring is performed only in the country's main river basins.9
In addition, monitoring practices are not consistent across different monitoring stations.10
As a
result, OEFA and MINAM have not been able to establish good baselines and trends for air and
water quality in priority areas of the country. The selection of sites for setting monitoring stations
also has been influenced by hotspots where a large number of environmental complaints are
registered, which leaves priority areas uncovered.
11. In addition, problems in the use of statistical methods used for sampling, including the
uncertainty level associated with the sampling results have affected the validity and
representativeness of the environmental data. Due to these analytical shortcomings, the
aggregate results of environmental quality data in air and watersheds are not always reliable and,
therefore, of little usefulness for environmental policy at the local, regional and national levels.
7 Global Competitiveness Report (2013-2014). Environmental sustainability is defined as “the institutions, policies
and factors that ensure an efficient management of resources to enable prosperity for present and future
generations”. (http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2013-14.pdf, last accessed on
September 11, 2016) 8 ibid.
9 Clean Air Institute (2015), Peru: Air Quality Monitoring Under Mining Driven Development. Final report prepared
for the World Bank. Unpublished. 10
ibid.
4
12. Monitoring efforts are also hampered by poor analysis. In Peru, third party laboratories
undertake most of the analysis of samples, and the authorities do not maintain rigorous quality
control amongst the labs. According to OEFA, nationwide only 35 out of 200 laboratories
providing environmental analytical services are accredited, and many of them do not cover all of
the parameters they ought to.11
Existing laboratories can only analyze up to 53 out of the 105
legally required parameters related to water ECAs, and only a few laboratories are capable of
measuring air quality parameters.
13. As a result of these weaknesses, the available environmental quality data has not satisfied
the public's demand for knowledge. Environmental contingency plans are rendered useless
because there is not enough data to tell when they ought to be triggered, and the lack of data on
the sources of pollution hampers evidence-based environmental quality control. The public's
distrust of the government, especially when it comes to decisions regarding the mining industry,
is exacerbated whenever the government is unable to provide data on the source and magnitude
of pollution issues. And, this distrust in turn leads to environment-related conflicts that have
adverse effects on economic growth.
14. Even when information does exist, it cannot easily be shared across agencies involved in
different aspects of environmental quality control. While the GoP has established norms for
inter-operational processes to facilitate information exchange among the agencies, the
implementation of these norms is lagging behind. For air quality monitoring, the Department of
Environmental Health (Dirección General de Salud Ambiental, DIGESA) of the Ministry of
Health manages five air quality monitoring stations in Lima and Callao, while the National
Meteorology and Hydrology Service (Servicio Nacional de Meteorología e Hidrología,
SENAMHI) manages ten air quality monitoring stations focusing on monitoring atmospheric
pollutants; and a municipal transport company Protransporte has three monitoring stations to
monitor air pollution emissions from the Bus Rapid Transit services in the same metropolitan
area. However, the GoP has not been able to combine the data from all these stations into one
coherent and standardized system.
15. To organize the country's disparate environmental information systems, the GoP
developed, in 2010, a National Environmental Information System (Sistema Nacional de
Información Ambiental, SINIA, http://sinia.minam.gob.pe) with the purpose of collecting
environmental management information from related authorities12
, performing data processing
and analyses13
, and enabling data access and dissemination.14
However, SINIA is plagued by
inadequate monitoring equipment and field recording devices, teams with low technical capacity,
11
OEFA (2016), Estudio de Preinversion a Nivel de Factibilidad del Proyecto de Inversión Pública: Mejoramiento
y Ampliación del Servicio de Control de la Calidad Ambiental a Nivel Nacional. Unpublished report. Lima. 12
Such information includes: (a) administrative records; (b) data from monitoring sensors; (c) inventories, censuses
and surveys; (d) remote sensing data; and (e) environmental monitoring data. 13
Data processing and analyses include (a) data quality control; (b) indicator development; (c) geospatial analysis;
and (d) environmental modeling. Currently, main environmental reports in Peru include: (a) National State of the
Environment Report; (b) Annual Solid Waste Report; (c) Environmental Performance Report; (d) Sectoral
Ecological Footprints; (e) ILAC: Series Sustainable Development Indicators; (f) Climate Change Communications;
(g) National Environmental Agenda; (h) Environmental Figures (pocket); and (i) Sector Reports. 14
Data access and dissemination are expected to be achieved through (a) web portals; (b) virtual library; (c)
environmental reports; (d) map catalogues; and (e) social networks.
5
outdated technical equipment, and incomplete procedures and protocols for data recording and
inputs. MINAM also has limited capacity to perform information analysis, and the SINIA portal
does not have sufficient processing capacity to collect, store and share the environmental quality
information generated by all agencies as per the requirements of government regulations. For
these reasons, SINIA has yet to achieve its mandate of sharing environmental quality information
across agencies and supporting sound decision making for sustainable economic development
activities.
16. The last key issue is the lack of informed and active public participation. Peru is a
country facing more frequent, and more intense, social conflicts linked to perceived
environmental impacts and degradation.15
In addition to the information availability issues
mentioned above, there are two additional constraints. One constraint is the limited channels for
the public to voice their environmental concerns and grievances. Another constraint pertains to
technological/geographical barriers such as rural populations’ limited access to the prevailing
internet-based platforms as well as the lack of user-friendly formats of the existing system.
MINAM acknowledges that the environmental complaints and grievance mechanisms in practice
involve cumbersome and inflexible processes with limited transparency, which inevitably
discourages public participation, particularly by the rural poor.
17. MINAM has promoted information disclosure through its SINIA portal, which has
documented over 750,000 visits from 2010 to 2014. But MINAM hasn't been able to move past
SINIA and find other ways to engage with the public. The absence of a multimodal information
platform has constrained SINIA’s capacity to reach out to a diverse range of potential users, in
particular those living in rural areas. The current SINIA system is designed as a one-way
communication platform and provides no interface for the public to provide inputs on
environmental management issues. This lack of interactivity has severely limited SINIA's
effectiveness as a public disclosure instrument.
18. The GoP recognizes that it faces issues at all levels of its environmental quality control
system. At the top level, it lacks emissions limits in some areas, and in other areas the values of
these limits must be adjusted. However, this cannot be done, because there is not enough data.
Knowledge on sources of pollution and how bad is the pollution is insufficient. This knowledge
gap is the result of deficiencies in the monitoring network, both in terms of the quality of the
network and in terms of number and placement of the monitoring networks, and deficiencies in
analysis—even when samples exist, they must be analyzed by labs that are unable to run all the
necessary tests. However, even when regulators can circumvent these problems and produce
some data, institutional barriers prevent them from disseminating the data across agencies, which
means the data cannot get to the planners who need it. Nor have they proven successful in
collecting and disseminating the data to the public.
19. Acknowledging this situation that impairs transparent, accountable and participatory
environmental quality control, the GoP has requested a World Bank financed project to support
its efforts to systematically address the regulatory, monitoring, and information challenges for
15
Ombudsman monthly reports on social conflicts (Reporte de Conflictos Sociales). For example, in the
Ombudsman database between October 2013 (report number 116) and October 2016 (report number 152)
socioenvironmental conflicts increased from 66.0 to 70.3 percent of all registered conflicts.
6
effective environmental quality control in order to enhance environmental management and
develop an evidence-based environmental policy.
C. Higher Level Objectives to which the Project Contributes
20. The Project is in line with the Country Partnership Strategy (CPS) for the Republic of
Peru for FY12-FY16 (Report No. 66187-PE), discussed by the Executive Directors on February
1, 2012, by supporting two of its four strategic objectives: the sustainable growth and improved
public sector performance objectives. Given the fact that environmental degradation
disproportionately affects the health and productivity of the poor and hinders sustainable
economic development, the proposed Project, to the extent that it improves Peru's ability to
recognize and mitigate environmental health risks, will also contribute to the Bank’s twin goals
of ending extreme poverty and promoting shared prosperity.
21. The proposed Project is also directly aligned with the priorities of the new Government to
develop indicators, baselines, evidence-based policymaking and measuring impacts of
environmental policies. The GoP has expressed interest in joining the OECD. The main
contribution of the Project to the Peru’s OECD country program is creating an enabling
environment for a more robust environmental management that will facilitate the implementation
of OECD recommendations in Peru. This Project will also directly implement some of the
OECD's recommendations, such as the strengthening of SINIA through the investments
supported by component 216
. Other components will indirectly contribute to the implementation
of the Peru OECD country program. For example, Peru seeks to establish the Pollutants Release
and Transfer Registry (PRTR) that is required under the OECD standards. But if this registry is
going to be effective, Peru needs a reliable environmental quality monitoring system.
II. PROJECT DEVELOPMENT OBJECTIVES
A. PDO
22. The objective of the proposed Project is to generate and share information for
environmental quality control at the national level, by supporting the Government of Peru to
improve its environmental monitoring and analytical capacity, increase public access to
environmental quality information and promote informed public participation in environmental
quality management.
23. To achieve this objective the Project will (i) improve the regulatory framework for
controlling environmental quality, (ii) increase environmental monitoring and analytical capacity
and practice, (iii) enhance quality assurance and quality control of environmental monitoring
systems, (iv) modernize information disclosure and interactive services with the public, and (v)
provide free access to reliable environmental quality data. As noted, successful implementation
of this proposed Project will lay a solid foundation for the country’s accession to the OECD and
for the country to move into the next stage with follow-up actions to reduce costs of
16
Recommendation 7 of the “Plan de acción para la implementación de las recomendaciones de la Evaluación de
Desempeño Ambiental (EDA) elaborado por la OCDE/CEPAL” approved under the legal umbrela of Supreme
Resolution N° 04-2016-MINAM.
7
environmental degradation through an empowered civil society, improved decision making in
environmental policy and management, and better enforcement of environmental regulations.
B. Project Beneficiaries
24. This Project’s primary beneficiaries will be OEFA and MINAM. OEFA will receive
Project support to strengthen its human and technical capacity in environmental monitoring and
analysis; MINAM will strengthen its regulatory capacity, information collection and disclosure,
and ability to mobilize public participation. After the platform is upgraded, SINIA's
environmental data will benefit all national, regional and local agencies in charge of
environmental management. This would include dissemination of data on greenhouse gases as it
becomes available. For example, concentrations of nitrous oxides and ozone will be measured in
the cities where the project will support the establishment of air monitoring networks.
Furthermore, SINIA's new information disclosure and public participation platforms will benefit
concerned private sector entities, civil society and the general public by providing them with
access to the tools they need to influence environmental policy. In addition, SENAMHI will
receive radiosonde equipment for weather studies in Lima-Callao and hardware for upgrading its
data center capacity to share information with SINIA.
C. PDO Level Results Indicators
25. The following indicators will measure the Project’s achievements on the PDO.
(a) Validated air quality monitoring networks in operation supported by the Project. This
indicator measures the Project’s impact on improved air quality monitoring services and
Project’s contribution to recommendation 25.1 of the Action Plan for the implementation
of the recommendations of OECD Environmental Performance Review (EPR) of Peru.17
(b) Validated surface water quality monitoring networks in operation supported by the
Project. This indicator measures the Project’s impact on improved water quality
monitoring services.
(c) Analytical parameters accredited for the OEFA laboratory. This indicator measures the
progress of the Project-financed laboratory in achieving its designed analytical capacity.
(d) Environmental quality information disclosed through SINIA. This indicator measures
how much of the available environmental quality monitoring data SINIA will be able to
collect and disclose to the public. This indicator is aligned with recommendation 7 of the
OECD Environmental Performance Review of Peru, 2016.18
(e) Average user satisfaction score of SINIA. This indicator measures how effectively the
new system satisfies public demand for environmental quality information and facilitates
17
Recommendation 25.1 of the Action Plan for the implementation of the recommendations of OECD EPR of Peru,
approved under Supreme Resolution 04-2016-MINAM, requires implementation of 31 prioritized air monitoring
networks, six of which will be implemented with support from project. The existing Lima-Callao air quality
monitoring network will be enhanced and validated by the project. 18
Recommendation 7 of the OECD’s Environmental Performance Review of Peru suggests continue strengthening
the environmental information system and its use in public policy. This requires ensuring “the continuous,
representative and obligatory reporting of basic environmental information with adequate and internally
standardized coverage”. ENV/EPOC/WPEP(2006)3, Environment Directorate, OECD.
8
participation in environmental quality management. The indicator will be disaggregated
by sex to identify potential variations in average user satisfaction.
III. PROJECT DESCRIPTION
A. Project Components
26. Component 1: Improve Environmental Quality Control (US$ 61.42 million, of which US$
37.28 million financed by the Bank Loan). This component will support MINAM and OEFA to
carry out their responsibilities in air, water and soil monitoring and analysis based on an
improved regulatory framework, the development of capacities and infrastructure for effective
environmental monitoring, and the strengthening of analytical and quality control and quality
assurance capacities. The component has three subcomponents: (1.1) Environmental Quality
Standards and Guidelines; (1.2) Monitoring and Analytical Capacity Building; and (1.3)
Monitoring and Analysis.
27. More specifically, subcomponent 1.1: ‘Environmental Quality Standards and Guidelines’
will support DGCA of MINAM to strengthen the regulatory framework. It will also support the
preparation of technical standards, protocols and guidance for ambient monitoring and analytical
activities, baselines and pollution sources studies for supporting evidence based policy making
and environmental quality control. Subcomponent 1.2: Monitoring and Analytical Capacity
Building will support OEFA to better monitor air and water quality in priority air sheds and
watersheds of the country. Subcomponent 1.3 Monitoring and Analysis will support OEFA to
design, construct, equip and operate a state-of-art national environmental analysis laboratory to
be accredited with ISO/IEC 17025:2006 (General requirements for the competence of testing and
calibration laboratories). This laboratory will have two separated sections. The section that will
cover the analytical demand of OEFA and another section, the validation and settlement
laboratory, that will cover the need for quality control of public and private laboratories. This
section will perform the functions of a reference laboratory. OEFA will also promote the
adoption of Laboratory Good Practices and oversee compliance with these practices. It
periodically will publish the list of the laboratories with good practices and the associated risks
of using data generated in laboratories that do not have good practices to induce a gradual
upgrade of the validity and reliability of environmental data in Peru.
28. Component 2: Improve Information and Public Participation for Environmental Quality
Control (US$ 4.83 million, of which US$ 2.72 million will be financed by the Bank Loan). This
component will support (2.1) interconnection of existing environmental quality databases; (2.2)
improvement of SINIA’s capacity to manage environmental quality data; (2.3) development and
deployment of user-friendly IT platforms accessible to the public but tailored to the information
needs of different stakeholders/audiences; (2.4) development and deployment of communication
tools for public inputs on environmental quality management issues; and (2.5) improvement of
stakeholders’ capacity to use the new environmental information tools. As a result, this
component will improve SINIA’s capacity to: (i) collect, store and share environmental quality
information generated by various agencies at the national and local levels; and (ii) facilitate the
9
dissemination of environmental quality information and public participation in environmental
quality management.19
29. Component 3: Project Management (US$ 4.16 million, fully financed with counterpart
contributions). This component will support MINAM and OEFA's efforts to implement the
project activities, through provision of technical assistance, goods, consultants' services and
operating costs. Special attention will be given to the close coordination of project activities
under Components 1 and 2 to generate the synergies needed to effectively achieve the PDO.
30. A detailed description of the proposed Project’s components is provided in Annex 2.
B. Project Financing
31. The selected lending instrument is Investment Project Financing (IPF). An IBRD loan
will be provided to the Republic of Peru, which will allocate the loan proceeds to OEFA.
C. Project Cost and Financing
32. The proposed Project cost will be US$ 70.41 million, of which US$ 40 million would be
financed by the IBRD loan. The counterpart funding will be provided through the government’s
budget allocations for public investment resources to OEFA and MINAM and OEFA’s own
revenues.
Project Components Project cost* IBRD Financing % Financing
1. Improve Environmental Quality Control
2. Improve Environmental Information and Public
Participation for Environmental Quality Control 3. Project Management
Total Costs
61,418,150
4,829,837 4,159,319
37,277,479
2,722,521 0
60.69
56.37 0
Total Project Costs
Total Financing Required
70,407,306
40,000,000
40,000,000
56.81
* Including tax
D. Lessons Learned and Reflected in the Project Design
33. Although Peru has made considerable progress in developing an institutional framework
for environmental management, reforms have also revealed a number of capacity gaps. In its
initial talks with the Bank regarding a possible Project, MINAM set forth an ambitious agenda
that covered from strengthening environmental impact assessments systems, improving
environmental quality control, developing environmental information systems and promoting
public participation in environmental management. By attempting to respond to this agenda, the
main lessons learned were the need for matching aspirations with capacity and setting goals that
are achievable within the Project timeframe. This required reaching in the environment sector for
19
Although the Project will not monitor emissions of air pollutants, the air monitoring stations supported by the
Project will track concentrations of nitrous oxide and ozone, which are greenhouse gases, in priority air sheds. The
measuring of concentrations of PM2.5, which the project will support, may provide a proxy for concentrations in the
air of black carbon, which is an aerosol that significantly contributes to climate change.
10
institutional and technical capacities for Project preparation additional to MINAM’s capacity as
well as narrowing down the Project’s focus to one or two strategic issues.
34. As a result, OEFA was invited by MINAM to join the project due to its focus on
environmental quality control and enforcement. Also, the Bank and MINAM's initial focuses,
which involved strengthening environmental impact assessment systems through support for the
National Agency for Environmental Certification (SENACE), was eventually dropped from the
project, because discussions had revealed that the gaps in environmental quality control were a
larger priority. Another initial focus was on increasing the in-person public participation in
decision-making, but as discussions continued, the government began to focus on the potential
opened by the Web: the new focus was on generating high quality environmental information
and broadly sharing this information with the civil society. This was conceived as a first stage,
which could be followed with more ambitious and direct ways of involving the civil society in
environmental management.
35. Another key lesson has been recognizing the need for only one head of the Project to
ensure close coordination between MINAM and OEFA. This resulted in the creation of the PSC
to provide overarching vision but managerial responsibility and oversight is ensured through the
PCU to be based in OEFA. This unit will manage and coordinate project implementation with
different units within MINAM and OEFA. During project preparation, the possibility of creating
two separate project coordinating units, one within MINAM and one within OEFA was
considered, and clearly dividing tasks between the two. However, this would have increased the
risk of management fragmentation and insufficient coordination for Project implementation.
Ultimately, this suggestion was decided against because there are major synergies between the
objectives of the two agencies that the GoP and the Bank wanted the Project to reap. More
specifically, MINAM, which is responsible for quality control regulations, and OEFA, which is
responsible for the actual quality control, ought to coordinate closely when designing and
implementing the environmental information systems that will be a key input into both of their
tasks.
IV. IMPLEMENTATION
A. Institutional and Implementation Arrangements
36. Following Project approval, MINAM will establish a project steering committee (PSC) to
oversee project implementation and give the project strategic direction. This committee will
include the Vice Minister of Environment Management, who will chair the PSC, the President of
OEFA, the General Director of Public Investment from MEF, a representative of the Planning
and Budget Office of MINAM, the General Director of Environmental Information and Research
of MINAM and the Project Coordinator. The PSC will approve the Project Operations Manual
(POM), which is a condition of effectiveness.
37. The Project executing agency is OEFA, which is an agency with an independent budget
status under MINAM. OEFA will manage the loan proceeds through a Special Account to be
established in the Banco de la Nación. For implementing the Project, OEFA will establish a
Project Coordination Unit (PCU), which will coordinate with related OEFA’s and MINAM’s
departments and other national agencies. Also, OEFA will hire the PCU’s key staff including the
11
PCU coordinator, the legal, financial and procurements specialists. Both actions the creation of
the PCU and hiring of its key staff are conditions of effectiveness. After effectiveness, OEFA
will hire additional staff for the PCU prioritizing on the four Project technical coordinators who
will assist in the implementation of subcomponents 1.1, 1.2, 1.3 and component 2. OEFA’s
Administrative Office (AO) will perform financial management and disbursement activities for
Project implementation with support from the PCU.
38. While OEFA will be responsible for the Project’s management, it will closely cooperate
with MINAM in performing this activity. MINAM will approve ToRs and clear the goods and
services provided by the contractors for the implementation of subcomponent 1.1 and component
2. The PCU will put in place in MINAM a team of technical, financial/procurement and
administrative specialists to assist in this coordination process. OEFA and MINAM will establish
a cooperation agreement to define in detail their roles and responsibilities in Project
implementation that is a condition of effectiveness. In addition, SENAMHI and ANA will
provide information on environmental quality to MINAM through SINIA. SENAMHI will
receive IT equipment and a radiosonde funded by the Project from OEFA. Cooperation
agreements between OEFA, SENAMHI and MINAM; and MINAM and ANA will be
established to reflect the different responsibilities between the parties.
39. MINAM and OEFA jointly developed a POM to define (a) the roles and responsibilities
of all agencies involved in Project implementation; (b) financial management, disbursement,
procurement and safeguard arrangements; (c) procedures and processes to carry out Project
implementation; and (d) monitoring and evaluation (M&E), reporting and information disclosure
arrangements. MINAM and OEFA submitted the POM to the Bank prior to negotiations. More
detailed Project institutional and implementation arrangements can be found in Annex 3.
B. Results Monitoring and Evaluation
40. The results framework has been developed in close discussion with MINAM and OEFA.
The overall responsibility for Project M&E will lie with the OEFA PCU. The PCU will
consolidate the data at the Project level, monitor Project implementation progress, including the
execution of all activities, procurement and contractual activities, accounting and financial
records, and other operational and administrative matters, and produce semi-annual reports
describing this progress. The POM specifies M&E responsibilities, including data requirements,
responsible parties, frequency and timing of information collection, and reporting arrangements.
The proposed Project's results framework can be found in Annex 1. During implementation, the
Bank will monitor and evaluate implementation results through regular implementation support
missions and review meetings.
C. Sustainability
41. This proposed Project supports critical elements of the country’s environmental strategy
and action plans by supporting MINAM and OEFA in their efforts to collect, analyze and
disseminate environmental quality information. The government plans to fund these expenses
12
during implementation and operation from OEFA’s own resources.20
A covenant to cover O&M
costs, during Project implementation, of the laboratory and air and water monitoring networks
supported by the Project was included in the legal agreement. Moreover, the government holds
this Project as a high priority. Not only does the GoP wish to achieve transparent, accountable
and inclusive governance, it also wants to improve Peru's environmental management practices
in order to meet OECD requirements. Finally, the public’s demand for sound and timely
environmental quality information will help motivate the GoP to sustain and scale up Project
results.
V. KEY RISKS
A. Overall Risk Rating and Explanation of Key Risks
42. The overall risk rating of the proposed Project is assessed as Moderate. Key risks arise
from fiduciary management and technical design.
43. The fiduciary risks are Substantial due to OEFA’s lack of experience in procuring and
managing both Bank-financed projects and large investment projects. Project delays may also
result from difficulties in procuring specialized equipment for the OEFA’s laboratory and the
possibility of slow mobilization of the counterpart budget funds to support the PCU. Risk
mitigation measures include establishing of the PCU, project management training for PCU staff,
overall strengthening of financial management and procurement functions at OEFA, and the
establishment of systematic inter-agency procedures that are included in the POM. Highly
qualified technical and procurement specialists will be recruited to support the PCU, including a
specialist with experience in procurement for large projects and preferably knowledge of
environmental laboratory equipment and technology. As a result, the OEFA’s residual risk of
institutional capacity for implementation and sustainability is moderate.
44. OEFA will also hire a specialized firm to build its laboratory. Because of the size of this
contract, which will include both the construction of the lab and procurement of equipment,
OEFA will look for firms that are experienced in setting up laboratories. This would lower the
risk of issues and delays. In addition, specialized consultancies will increase OEFA’s capacity
for managing and supervising the implementation of the subcomponents “Monitoring and
Analytical Capacity Building” and “Monitoring and Analysis”. Finally, the Bank’s regular
implementation support missions will also help the PCU identify implementation issues at early
stages and take corrective actions as needed.
45. Technical design risks for the proposed Project are rated Moderate on three fronts: (a)
possible delays in the procurement of the land plot by OEFA; (b) institutional capacity for
implementation and sustainability; and, (c) difficulties that may arise because Project
management is funded solely by counterpart funding.
20
OEFA will save resources that currently uses to pay for analytical services from third party laboratories. OEFA
has estimated that these savings cover the O&M expenses of the laboratory whose construction and equipment will
be supported by this project.
13
46. For mitigating the risks with regard to the procurement of land OEFA carried out a
market study to identify the best technical and economic options for the laboratory site. The
study included publication through newspapers of a request for proposals. OEFA received fifty-
two proposals and evaluated their compliance with municipal regulations for the construction of
laboratories, availability of public utilities, safety, and absence of physical and legal liabilities.
From the evaluation of proposals, OEFA identified two possible plots; of these the least cost
option is located in the province of Callao. However, during Project implementation OEFA may
select another land plot that offers better technical conditions or price. OEFA cannot progress
further in the acquisition of the land until Project approval. Thus, Project implementation could
be delayed, if the selected land lot becomes unavailable after the Project’s approval. However,
this risk is moderate because alternative land plots are available.
47. Potential institutional frictions and coordination problems between OEFA and MINAM
create a risk for Project implementation and sustainability. This risk was substantial during
preparation when both MINAM and OEFA wanted to have separate PCUs for implementation.
In that situation, which did not materialize, OEFA would have had to transfer directly billed
revenues to MINAM and coordination and fine-tuning between policy makers (MINAM) and
regulators (OEFA) of environmental quality control was not ensured. Mitigation measures of
these risks have been (i) the creation of only one PCU and (ii) vesting in OEFA the main
responsibility of Project implementation because OEFA has stronger Project implementing
capacity than MINAM and it is less vulnerable to political interferences. Moreover, because
MINAM has (i) the control of the critical policy and technical processes for the implementation
of component 2 and subcomponent 1.1 and (ii) the defining voice in the PSC, a system of checks
and balances has been built in the institutional arrangements for Project implementation. This
system avoids undue influence of OEFA on the policy, regulatory and information sharing
aspects of the Project at the same time that encourages coordination between MINAM and
OEFA. As a result, the residual risk of the institutional capacity for implementation and
sustainability is moderate.
48. Another risk faced by the proposed Project would be insufficient counterpart funding to
support Project management. This risk is created by the government policy of not allowing the
use of loan proceeds for Project management. However, this risk is moderate because OEFA can
and will use the resources from its directly billed revenues to cover their financial obligations for
the Project21.
In 2017, OEFA will entirely cover the expenses for the Project from this source22.
Between 2018 and 2022, these resources, along with ordinary revenues from the Treasury, will
cover the cost of operating the PCU. The Bank will monitor these technical risks closely and
support MINAM and OEFA to take necessary actions to minimize the impact of these risks on
Project implementation.
21
The report No 022-2016-EF/63-01 of the Ministry of Environment and Finance that gives the project viability
(viabilidad del programa) establishes that OEFA will cover at least 45.20 percent of the project management costs
from its directly billed revenues. 22
October 26, 2016, e-mail confirmation message from OEFA’s Head of the Planning and Budget Office.
14
VI. APPRAISAL SUMMARY
A. Economic and Financial Analysis
49. In all areas of the proposed Project there are classic market failures that justify public
funding, as long as delivery is well designed and cost effective. The proposed Project aims to
strengthen public institutions (MINAM and OEFA for Component 1; and SINIA for Component
2), which provide public goods to Peruvian society. The production of comprehensive, and
publicly-accessible environmental data deserves public funding because markets cannot function
efficiently if they don't have information about the potential impacts of various measures.
Environmental data are a key part of mitigating impacts, promoting better environmental
management, increasing regulatory oversight, and improving enforcement and compliance.
Consequently, the proposed Project justification is clear: this is a situation where a medium-sized
investment from the Bank can catalyze further action on the part of the government and the
public.
50. Following a cost-benefit approach, the benefits and costs were monetized by estimating the
benefits of lower air and water pollution in future mortality and morbidity rates in relation to the
Project’s component 1. For component 2, estimated monetary benefits are related to time saved
while searching information at SINIA’s website. The ex-ante economic analysis suggests that
Project-supported investments will generate substantial benefits for beneficiaries in areas served
by the Project, as well as substantial benefits for Peruvian society as a whole (Annex 5). Overall,
the net present value (NPV) is projected to at between US$ 40 million (low case scenario) and
US$ 84 million (high case scenario), while the internal rate of return (IRR) to this investment is
estimated at between 20 and 30 percent. Results are robust to adverse changes in the key
parameters.
B. Technical
51. This proposed Project supports the GoP in developing its capacity to better manage
environmental quality. For Component 1, the current Project design will help ensure that
recognized international practices in environmental quality control are used in the review and
revision of ECAs and LMPs as well as in the procurement, construction and operation of the
Project sponsored laboratory, monitoring and analytical equipment, and monitoring stations for
air and water. For Component 2, the proposed investments will support the upgrade of SINIA's
existing technical infrastructure, but the Project will avoid duplicating investments or
unnecessarily retiring existing equipment and systems. The proposed system to openly
disseminate environmental quality data and foster public participation through web-based
platforms fully incorporates international good practices and the latest technology developments.
Annex 2 provides a more detailed account of Project activities.
C. Financial Management
52. OEFA’s administration office will manage the fiduciary aspects of Project
implementation, but the technical aspects of component 2 and subcomponent 1.1 will be under
MINAM’s responsibility. Therefore, OEFA will work in close coordination with MINAM for the
implementation of these components. The Bank funds will be disbursed to a designated bank
15
account opened at Banco de la Nación. Project implementation will comply with the national
laws governing budget and financial management, including the adoption of the Integrated
System for Financial Administration (Sistema Integrado de Administración Financiera, SIAF)
and the General Chart of Accounts established under SIAF. The National General Comptroller’s
Office will be responsible for selecting an audit firm for the Project. In addition, OEFA has been
able to define adequate financial management arrangements to implement the proposed Project.
Those arrangements have been reflected in the POM (Financial Management chapter). Annex 3
presents in detail the financial management of the Project in response to the findings from the
financial assessment undertaken of OEFA by the Bank.
53. As a result of the Financial Management Assessment performed, the Project's risk rating
is substantial. However, once the mitigating measures are put in place and the pending activities
described in Annex 3 are accomplished, the FM arrangements will meet the Bank´s minimum
fiduciary requirements. The following actions are conditions of effectiveness: (i) approval of the
POM; (ii) hiring of fiduciary key staff (FM Specialist and Procurement Specialist); and (iii) the
creation of an inter-institutional agreement between OEFA and MINAM in a manner satisfactory
to the Bank.
D. Procurement
54. An assessment of OEFA’s capacity to implement procurement actions for the Project was
carried out. The assessment identified potential risks that could affect achievement of Project’s
objectives. These risks are mainly related to OEFA’s lack of prior experience with large
investment Projects, the lack of skilled staff to implement Bank-financed Projects, and the
complexity of the activities, especially those involving the laboratory infrastructure. The risk
mitigations measures, during implementation of the Project, include: (i) to adopt and implement
POM satisfactory to the Bank, (ii) to hire skilled procurement staff, and (iii) to manage the
procurement plan through STEP (Systematic Tracking of Exchanges in Procurement). The
details of the assessment, as well as the mitigation measures for the identified risks, are in Annex
3.
E. Social (including Safeguards)
55. The construction of the Laboratory which is one of the proposed Project’s investment
activities will require acquisition of a vacant commercial lot of 6,000 m2 (approximately 1.5
acres) from a private owner. The Involuntary Resettlement safeguard policy, OP/BP 4.12, was
not triggered because this is a “willing buyer/willing seller” situation, where preliminary
proposals for supplying the land were publically invited and submitted. 23
Through this process a
preliminary selection of a site was conducted. The team’s social specialist visited the possible
site to be acquired by OEFA during Project preparation and found no resettlement issues.
However, because at this stage there is no guarantee that the preliminary identified area for the
construction of the laboratory will be purchased, the Borrower has agreed with the Bank that no
land will be purchased if there are third party interests involved, such as disputed property rights,
or if illegal occupants are present. In addition, this site is not the only one that can be used:
23
The Regional Safeguards Advisor (RSA) for the Latin American and Caribbean Region was consulted and
confirmed that OP 4.12 does not to be triggered.
16
alternatives are available, and will be sought, if for any reason the land is not available when
needed. There is no prospect of any land being appropriated for Project purposes if the owner
chose not to sell, as the client committed to follow the same principles should a different plot be
selected.24
Further, a covenant that no resettlement will be involved during land acquisition is
included in the loan agreement.
56. The installation of air quality and hydrometeorology stations in Lima, Trujillo, Chiclayo,
Piura, Iquitos, Huancayo and Cusco will require small areas (5 to 8 m2 per each station), likely in
public lands. Because information from updated emissions inventories and dispersion models in
these cities will be available during Project implementation, MINAM held off on identifying a
definitive location for the air stations during Project preparation. However, given the small
amount of land required, it will not be difficult to find unoccupied areas where the stations will
not have any negative impacts. In addition, OEFA will not consider sites that could involve
involuntary resettlement. As such, the Project does not trigger the Bank’s OP 4.12 Involuntary
Resettlement Policy.
F. Environment (including Safeguards)
57. By promoting transparent, effective and inclusive governance of environmental quality
control, this Project will bring positive environmental benefits. The investment activities –
construction and operation of the national environmental laboratory – may however generate
negative environmental impacts that are local to the surrounding environment. Consequently, the
proposed Project triggers the Bank’s OP/BP 4.01 Environmental Assessment policy. In addition,
due to potential chance finds of physical cultural resources, especially those of archaeological
significance, which could be identified during the installation of air quality monitoring networks,
construction of the national environmental laboratory and minor remodeling works, the proposed
Project also triggers OP/ BP 4.11 Physical Cultural Resources. Because the impacts of these
activities are expected to be small in scale, short-term, reversible and mitigable, the proposed
Project has been identified “ as category B” (see Annex 3). Because the Project will not
intervene in sensitive habitats or forests, the Bank’s policy safeguards on Natural Habitats
(OP/BP 4.04) and Forests (OP/BP 4.36) are not triggered. In spite of this, in the subheading
7.1.7.1 of the ESMF damaging environmental activities, which are considered environmental
crimes by the Peruvian Legislation, and those included in the Bank’s category A are listed (i.e.,
environmental and landscape alteration, and destruction, burning, cutting or damaging in all or
part forests). The Project cannot fund these activities.
58. Because the land for the construction of the laboratory will be acquired after Project
approval with counterpart funds, the location of the laboratory was not known during Project
preparation. Nor is there yet a definitive location for the air quality monitoring stations.
Therefore, OEFA in coordination with MINAM prepared an Environmental and Social
Management Framework (ESMF) to guide management of potential environmental and social
issues during Project implementation. The Bank approved the ESMF, which was disclosed on 26
September 2016 in the country through the websites of OEFA and MINAM and through the
Bank’s external website the same date. OEFA and MINAM consulted the Project and the ESMF
24
As long as the client is committed to follow the same principles to select the land plot for the laboratory, should a
different plot be selected in the future, the RSA confirmed that policy 4.12 does not need to be triggered.
17
through a public hearing held in Lima on October 7, 2016. Approximately 700 people was
invited to the public hearing and 90 attended from the public sector (Ministries and
Superintendences), Ombudsman, non-governmental organizations, academic organizations
(universities and research centers), private companies (mining and oil) and consultants. The
participants at the hearing have not requested changes or expressed objections to the Project’s
ESMF.
59. The ESMF identifies the following preventive actions for the construction phase, to
ensure minimum adverse impacts:
- Locate the laboratory in an industrial area
- Comply with the ECAs and LMPs
- Laboratory design to meet the national building standards
- Follow the LEED standards
- Obtain archaeological certification (CIRA in Spanish) to prevent negative impacts on
physical cultural resources
- Build green areas within the site
In addition, it sets the following actions as important measures to reduce adverse impacts:
- Prohibit the use of lead paint
- Promote efficient use of natural light
- Promote efficient use of wind
- Promote efficient use of water and recycled water
- Appropriate treatment of wastewater
- Promote use of natural gas for operation including shower and baths
- Promote use of clean energy including solar power and other energy efficient
technologies
During implementation, the Environmental Management Plan (EMP) will include protocols and
guidelines to properly manage wastewater and solid waste during the operation stage, including
the following:
- Promote responsible handling of chemicals
- Promote use of organic products
- Promote recycling of materials and equipment and reducing overconsumption
- Avoid purchase of obsolescent products
60. Since June 2015, OEFA has established a grievance redress mechanism that will cover
potential grievances or complaints about the Project (www.oefa.gob.pe/portada/libro-de-
reclamaciones-virtual). The General Secretariat Resolution No 033-2015-OEFA sets the specific
procedures for the registry, processing and redress of grievances made by users of OEFA’s
Grievance Book (www.oefa.gob.pe/?wpfb_dl=14516). The Resolution also specifies that OEFA
should provide a response within 15 days. www.oefa.gob.pe/portada/libro-de-reclamaciones-
virtual
G. World Bank Grievance Redress
18
61. Communities and individuals who believe that they are adversely affected by a World
Bank (WB) supported Project may submit complaints to existing project-level grievance redress
mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints
received are promptly reviewed in order to address project-related concerns. Project affected
communities and individuals may submit their complaint to the WB’s independent Inspection
Panel, which determines whether harm occurred, or could occur, as a result of WB non-
compliance with its policies and procedures. Complaints may be submitted at any time after
concerns have been brought directly to the World Bank's attention, and Bank Management has
been given an opportunity to respond. For information on how to submit complaints to the
World Bank’s corporate Grievance Redress Service (GRS), please visit
http://www.worldbank.org/GRS. For information on how to submit complaints to the World
Bank Inspection Panel, please visit www.inspectionpanel.org.
19
Annex 1: Results Framework and Monitoring
Country: Peru
Project Name: Enhancement of Environmental Quality Services (P147342)
Results Framework
Project Development Objectives
PDO Statement
The objective of this project is to generate and share information for environmental quality control at the national level, by supporting the
Government of Peru to improve its environmental monitoring and analytical capacity, increase public access to environmental quality information,
and promote informed public participation in environmental quality management.
These results are at Project Level
Project Development Objective Indicators
Cumulative Target Values
Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End
Target
Validated air quality monitoring networks in operation supported by
the project (recommendation 25.1 of the Action Plan for the
implementation of the recommendations of the OECD EPR of Peru)
(Number)
0.00 0.00 1.00 3.00 7.00 7.00 7.00
Validated surface water quality monitoring networks in operation
supported by the project
(Number)
0.00 0.00 0.00 0.00 1.00 1.00 1.00
Analytical parameters accredited for the OEFA laboratory
(Percentage) 0.00 0.00 0.00 0.00 30.00 70.00 70.00
Environmental quality information disclosed through SINIA (aligned to
recommendation 7 of the OECD Environmental Performance Review
of Peru, 2016) (Percentage)
5.00 5.00 5.00 40.00 70.00 100.00 100.00
20
Average user satisfaction score of the National Environmental
Information System (SINIA) (disaggregated by sex)
(Number)
2.00 2.00 2.00 3.00 4.00 4.00 4.00
Intermediate Results Indicators
Cumulative Target Values
Indicator Name Baseline YR1 YR2 YR3 YR4 YR5 End
Target
Functioning air quality monitoring stations established by the project
(Number) 0.00 0.00 6.00 16.00 16.00 16.00 16.00
Functioning water quality monitoring station established by the project
(Number) 0.00 0.00 0.00 12.00 19.00 19.00 19.00
OEFA Lab Established
(Number) 0.00 0.00 0.00 0.00 1.00 1.00 1.00
Accredited laboratories with Good Laboratory Practice compliance
(Percentage) 0.00 0.00 0.00 0.00 0.00 10.00 10.00
Samples analyzed by OEFA laboratory
(Number in thousand) 0.00 0.00 0.00 0.00 70.00 150.00 150.00
ECAs established or revised supported by the project
(Number) 0.00 0.00 0.00 1.00 1.00 1.00 1.00
LMPs established or revised supported by the project (recommendation
26.2 of the Action Plan for the implementation of the recommendations
of OECD EPR of Peru).
(Number)
0.00 0.00 2.00 3.00 5.00 5.00 5.00
National entities submitting environmental quality information to
SINIA
(Number)
1.00 1.00 3.00 5.00 5.00 5.00 5.00
Public Engagement tools deployed (Number) 1.00 1.00 3.00 7.00 7.00 7.00 7.00
Visits to the project supported public engagement platforms
(Number in thousand) 300.00 750.00 1230.00 1730.00 2260.00 3130.00 3130.00
21
Response rate to registered public requests for environmental quality
information with SINIA (aligned to recommendation 7 of the OECD
Environmental Performance Review of Peru, 2016)
(Percentage)
40.00 40.00 40.00 50.00 60.00 70.00 70.00
CSO staff trained on public engagement tools
(Number) 0.00 0.00 0.00 200.00 200.00 200.00 200.00
Officials trained on the use of environmental quality information for
informed decision making
(Number)
0.00 0.00 0.00 110.00 110.00 110.00 110.00
Software engineers trained on open data and potential uses of such data
(Number) 0.00 0.00 0.00 50.00 50.00 50.00 50.00
Indicator Description
Project Development Objective Indicators
Indicator Name Description (indicator definition etc.) Frequency Data Source /
Methodology
Responsibility for
Data Collection
Validated air quality
monitoring networks in
operation supported by the
project
This indicator measures the number of networks:
one control center and various monitoring
stations connected to it. "Validated" means
having a certification as a proof to meet certain
Peruvian quality assurance and quality control
protocols at the monitoring station and control
center level. Target is to complete and validate
the protocol at Year 2. SENAMHI has the
competence for validating air quality monitoring
networks.
Note: Recommendation 25.1 of the Action Plan
for the implementation of the recommendations
of OECD EPR of Peru, approved under Supreme
Resolution 04-2016-MINAM, requires
implementation of 31 prioritized air monitoring
Semi-annual Technical inspection of
networks compliance with
quality assurance and
quality control protocols
OEFA
22
networks, six of which will be implemented with
support from project. The existing Lima-Callao
network will be enhanced and validated by the
project
Validated surface water
quality monitoring
networks in operation
supported by the project
This indicator measures the number of networks:
one control center and various monitoring
stations connected to it. "Validated" means
having a certification as proof to meet certain
Peruvian quality assurance and quality control s
at the monitoring station and control center level.
Working with ANA, OEFA will develop a
protocol for monitoring validation. OEFA will
validate the operations and maintenance of the
system each year.
Semi-annual Technical inspection of
networks and monitoring
stations compliance with
quality assurance and
quality control protocols
OEFA
Analytical parameters
accredited for the OEFA
laboratory
This indicator measures the progress of the
project-financed laboratory in achieving its
designed analytical capacity. INACAL is legally
responsible for accrediting laboratories.
Semi-annual Review of accreditation
prepared by INACAL
and/or an internationally
recognized accreditation
institution
OEFA
Environmental quality
information disclosed
through SINIA
This indicator measures the available
environmental quality monitoring data on air
(according to ECAs), water (according to ECAs)
and soil (according to ECAs) quality collected by
SINIA from monitoring exercises (stations and
manual) of the five national agencies, which will
be disclosed to the public. SINIA will collect
data from ANA, DIGESA, SENAMHI, OEFA
and MINAM.
Note. Aligned with recommendation 7 of the
Environmental Performance Review of Peru to
the Working Party on Environmental
Performance, Environment Directorate, OECD.
Semi-annual Direct observation on
SINIA publicly accessible
platforms and portal
MINAM/SINIA
Average user satisfaction
score of the National
This indicator measures the efficacy of the
SINIA to serve the needs of the public for
Semi-Annual Online survey MINAM/SINIA
23
Environmental Information
System (SINIA)
(disaggregated by sex)
accessing environmental quality information and
participating in controlling and managing
environmental quality. The scale of the score is 1
to 5 based on a user survey.
Intermediate Results Indicators
Indicator Name Description (indicator definition etc.) Frequency Data Source /
Methodology
Responsibility for
Data Collection
Functioning air quality
monitoring stations
established by the project
Number of air quality monitoring stations
established by the project and in operation.
Semi-annual Review of technical
inspection reports upon
completion of civil works
OEFA
Functioning water quality
monitoring station
established by the project
Number of water quality monitoring station
established by the project
Semi-annual Review of technical
inspection reports upon
completion of civil works
OEFA
OEFA Lab Established OEFA lab is constructed, equipped and fully
functional.
Semi-annual Review of technical
inspection reports upon
completion of civil works
OEFA
Accredited laboratories
with Good Laboratory
Practice compliance
This indicator measures how many laboratories
have been able to comply with GLP
requirements.
Semi-annual Review of technical
reports on compliance of
public and private
laboratories with OEFA
good laboratory practice
guidelines
OEFA
Samples analyzed by OEFA
laboratory
This indicator measures the capacity of the
OEFA laboratory in performing sample analysis.
Semi-annual Review of OEFA log
book
OEFA
ECAs established or revised
supported by the project
ECAs established means developing an
environmental quality standard.
Semi-annual Review of legal
documents (public
gazette) establishing or
revising the ECA
MINAM/OEFA
LMPs established or
revised supported by the
project
LMP established means developing an emissions
or discharge standard.
Note: Recommendation 26.2 of the Action Plan
Semi-annual Review of legal
documents (public
gazette) establishing or
MINAM/OEFA
24
for the implementation of the recommendations
of OECD EPR of Peru, approved under Supreme
Resolution 04-2016-MINAM, requires
completing LMPs in sectors lacking these
standards or update existing LMPs. The Project
will contribute to achieving this recommendation
with five LMPs.
revising the LMPs
National agencies
submitting environmental
quality information to
SINIA
The indicator measures five targeted agencies
(ANA, DIGESA, SENAMHI, OEFA and
MINAM) submitting different types of
information according to an inter-operability
agreement (based on the information sharing
protocol) signed between MINAM and the
concerned institutions.
Semi-annual Review of reporting
according to
interoperability
agreements
MINAM/SINIA
Public engagement tools
deployed
Public engagement tools developed by the
project but probably also by the market. Tool
includes easy access ways to send information
(e.g. photos, text and voice messages) directly to
SINIA related to environmental quality using
simple mobile technology as well as
sophisticated applications.
Semi-annual Review of SINIA logbook
and SINIA portal on
information shared by
citizens
MINAM/SINIA
Visits to the project
supported public
engagement platforms
Self-explanatory. Semi-annual Tracking device
monitoring data
MINAM/SINIA
Response rate to registered
public requests for
environmental quality
information with SINIA
Response rate is within 7 working days.
Note: Aligned to recommendation 7 of the
Environmental Performance Review of Peru to
the Working Party on Environmental
Performance, Environment Directorate, OECD,
2016.
Semi-annual Review of SINIA logbook
and SINIA portal on
response and timelines of
responses (if required) to
information shared by
citizens
MINAM/SINIA
CSO staff trained on public
engagement tools
Self-explanatory. Semi-annual Review of service
providers reports
MINAM/SINIA
Officials trained on the use Self-explanatory. Semi-annual Review of service MINAM/SINIA
25
of environmental quality
information for informed
decision making
providers reports
Software engineers trained
on open data and potential
uses of such data
Self-explanatory. Semi-annual Review of service
providers reports
MINAM/SINIA
26
Annex 2: Detailed Project Description
PERU: Enhancement of Environmental Quality Services (P147342)
The Project has three components: (a) Improve Environmental Quality Control; (b) Improve
Information and Public Participation for Environmental Quality Control; and (c) Project
Management.
1. Component 1: Improve Environmental Quality Control (US$ 61.42 million, of which US$
37.28 million will be financed by the Bank Loan). This component supports OEFA and MINAM
to improve their capacity to properly carry out their responsibilities in environmental monitoring
and analysis based on an enhanced regulatory framework, the development of capacities and
infrastructure for an effective environmental monitoring, and the strengthening of analytical and
quality control/quality assurance capacities.25
The component has three subcomponents: (1.1)
Environmental Quality Standards and Guidelines; (1.2) Monitoring and Analytical Capacity
Building; and (1.3) Monitoring and Analysis.
2. Subcomponent 1.1: Environmental Quality Standards and Guidelines. This
subcomponent will support DGCA of MINAM to strengthen the regulatory framework. It will
also support the preparation of technical standards, protocols and guidance for ambient
monitoring and analytical activities and, for preparing and implementing actions plans, as
needed. For air quality management, it was agreed that DGCA will develop and/or complete: (a)
an analysis of cost-benefit and regulatory impacts of the proposed Clean Air Act; (b) an action
plan with key actions to implement the Clean Air Act, including the formulation of a specific
regulation; (c) design and implementation of a National Protocol for Air Quality Monitoring with
emphasis on QA/QC issues and validation requirements for monitoring stations and systems; (d)
design of Technical Norms on Air Quality to define measurement and QA/QC procedures; (e)
preparation of an ECA on air, water or soil based on evidence on the benefits for society such as
an ECA on heavy metals and other key pollutants for underground water; (f) development of two
LMPs on emissions from selected source categories such as industrial boilers, the steel industry
and smelters or other activities whose pollution control costs do not outweigh their social
benefits; (g) development of guidelines to prepare and implement air quality control plans; (h)
development of a protocol to monitor stationary source emissions; and (i) preparation of detailed
emission inventories for the seven selected zones. Greenhouse gases, specifically nitrous oxide
and ozone, would be included in the preparation of emission inventories.
3. For water quality, DGCA will develop: (a) a protocol for comprehensive evaluation of
water quality in watersheds; (b) a methodology for determining water quality indicators in
watersheds; (c) a guideline on the standardization of effluent and surface water monitoring
protocols; and (d) two studies for the development of a groundwater regulatory framework and
the production and treatment technologies of industrial and/or domestic wastewater. The
protocols, methodology and guidance will have national applicability, however, they will be first
tested and adjusted in the basins of the rivers Rimac and Moche.
25
MINAM identified the gaps in its regulatory monitoring capacity based on an analysis on environmental
monitoring demands in the next 15 years and OEFA’s current monitoring capacity.
27
4. For soil quality, DGCA will develop two studies on: (a) production and mining activities
and services generating hazardous substances that affect the soil quality of the river Rimac
Watershed; and (b) protocols to track and monitor remediation activities of contaminated soil.
5. Subcomponent 1.2: Monitoring and Analytical Capacity Building. This subcomponent
will first support OEFA to develop priority air and water monitoring networks. Specifically, it
will support OEFA to better monitor air and water quality in priority air-sheds and watersheds of
the country26
through: (a) enhancing the effectiveness of the air quality network in Lima and
identifying opportunities for further improvement and optimization of the current network;27
(b)
establishing six air quality monitoring networks in provinces (Trujillo with three stations,
Chiclayo with three stations, Iquitos with three stations, Huancayo with two stations, Cusco with
three stations and Piura with two stations and their integration into a national network;28
(c)
establishing a mechanism for the collection, quality control and transmission of air quality
information at the national level servicing all project’s air quality monitoring networks; (d)
establishing one water monitoring network with 19 monitoring stations for the Rimac River
Basin in Lima and developing a protocol for the validation of the operation and maintenance of
the monitoring system;29
and (e) strengthening water monitoring capacity at the Moche River
Basin in La Libertad. Detailed studies financed by the project, including an emission inventory
study and a pollution dispersion modeling exercise, will be used to optimize the layout and
requirements of the Lima air quality network. This Subcomponent will also support institutional,
policy and regulatory measures to establish an integrated air quality control system in the
country.
6. Each air monitoring station will measure automatically and continuously at least six
parameters: sulfur dioxide, carbon monoxide, nitrous oxides, PM2.5, PM10, and ozone. In
addition, each station will have a weather station to record meteorological parameters (wind
speed and direction, temperature and relative humidity, air pressure, radiation, and precipitation).
Moreover, each province will receive one total hydrocarbon analyzer.
7. For the river Rimac water quality monitoring network, the project will support nine sets
of additional mobile surface water monitoring equipment, three mobile groundwater monitoring
stations, and high-quality sediment sampling units. According to the monitoring protocol
26
Supreme Decree 074-2001-PCM and Ministerial Resolution 339-2012-MINAM established priority air-sheds for
Peru. 27
Lima already has three air quality monitoring networks SENAMHI (10 stations), DIGESA (5 stations) and
Protransporte (3 stations). It also has an Integrated Plan for Air Cleaning-up of Lima and Callao (PISA I, 2005-2010
and PISA II, 2010-2015). The project will support the optimization of this air monitoring system based on the results
from studies on exposed population to air pollution, emissions inventories and air pollutant dispersion models. 28
These six systems were selected from the 31 priority areas based on three conditions: (a) size of the affected
population, (b) size of the areas; and (c) regional diversity (coastal, jungle, and highlands). Siting of each monitoring
stations is decided by the Air Quality Improvement Plans for the Priority/Largest Urban Area of each province (Plan
a Limpiar el Aire), which draw on studies of air quality monitoring undertaken by DIGESA and OEFA. Specialized
agencies such as SENAMHI undertook the plans, which will be reviewed/updated during project implementation
when the detailed design of the network is carried out. 29
Siting of these stations is determined based on existing water quality management plans for the river basin
drawing on information of economic activities from OEFA that would discharge residual waters to the basin and the
National Monitoring Protocol of Surface Water Bodies. This protocol includes guidelines for the localization of
monitoring stations and parameters to be monitored.
28
developed, this subcomponent will support OEFA to conduct systematic monitoring of possible
groundwater contaminants in the Rimac River watershed, and perform comprehensive soil and
surface water quality monitoring to evaluate soil and surface water quality of the Rimac River
basin. For the river Moche basin, the project will support OEFA to evaluate background values
of sediment and water quality, monitor and characterize effluents to provide sufficient
information for the update of three priority LMPs to be defined based on their social benefits
such as LMPs on water effluents from agroindustrial activities, slaughterhouses, and
manufacturing.
8. For soil quality monitoring, three sets of portable analytical equipment will be procured
to obtain on-site readings of metals, hydrocarbons and other parameters. In addition, soil
samplers for different soil types will be procured.
9. To enable OEFA’s field monitoring activities, the project will support the procurement of
one four-wheel drive monitoring vehicle as well as multiple sets of infrared night vision cameras
and high definition camcorders.
10. In addition to the above-mentioned physical support to OEFA on monitoring network
development, this subcomponent will also support a series of studies and capacity development
and knowledge dissemination events to improve technical capacity of OEFA and its staff
members. Specifically, the subcomponent will support OEFA to (a) update monitoring protocols
of water parameters used in the Rimac watershed modeling exercises; (b) develop a protocol for
the development of groundwater quality indicators; (c) study of an ECA on sediments, including
sampling, texture characterization, and methods for extracting heavy metal sequentially from
sediments that may inform the development of an ECA by MINAM; (d) develop a guideline for
the determination of acid rock drainage; (e) develop a methodological guideline on the
establishment of surface water quality indices in different water bodies; (f) develop and
implementation of a quality assurance and quality control program for new monitoring stations
established under the project; (g) install a database server to ensure proper data storage and
processing; (h) study the number and location of air quality monitoring stations; (i) procure
radiosonde equipment to study weather conditions in the air quality priority areas of Lima-
Callao; and (j) design and implement air quality monitoring capacities targeting both managerial
and technical personnel.
11. OEFA will develop and implement a training program. International experts will be
mobilized to carry out eight training events on air quality monitoring, four on surface water
quality monitoring, and two on soil quality monitoring in Peru. OEFA and MINAM technical
staff will also attend international training events on environmental quality monitoring: three on
water, two on air and one on soil. Two study visits will be organized by OEFA to learn from
other countries that have undertaken similar projects. Lastly, to disseminate project
achievements, OEFA will organize dissemination events workshops and/or publications on water
quality, two on air quality and two on soil quality.
12. Subcomponent 1.3 Monitoring and Analysis. This sub-component supports OEFA to
construct, equip and operate a state-of-art national environmental analysis laboratory. This
laboratory is designed to be accredited with ISO/IEC 17025:2006 (General requirements for the
29
competence of testing and calibration laboratories) on 56 water quality, 18 air quality, and 34
soil quality parameters. During project implementation, it is expected that at least 60% of these
parameters will be accredited and the remaining will be accredited within two years after project
completion.
13. OEFA will operate a laboratory that will be comprised of two separate sections. One
section will cover the demand for analytical requirements of OEFA and will be managed through
the president of OEFA. It will support OEFA to properly analyze samples collected from
OEFA’s regulatory monitoring exercises under ECAs and LMPs and generate accurate and
reliable environmental quality information that can support informed decision-making. Another
section of the national laboratory will serve the needs for quality control of environmental
quality data generated by public and private laboratories. This section will perform the functions
of a reference laboratory. This section of the laboratory will be managed by a laboratory director
reporting to a board formed by public and private representatives. The proposed quality control
system will use the national laboratory to validate the accuracy, reliability and comparability of
environmental monitoring information generated by properly accredited public and private
laboratories. OEFA will promote the adoption and compliance of good laboratory practice (GLP)
among such laboratories.30
OEFA will disclose regularly a list of GLP complied laboratories that
are available to perform various environmental analysis tasks. To encourage more laboratories to
become GLP compliant, OEFA will disclose the name and GLP status of laboratories that have
been used to carry out environmental monitoring and analysis tasks and highlight the potential
risks of using environmental quality data from non-GLP laboratories.
14. Procurement and installation of laboratory equipment will be done by OEFA under the
project. The national laboratory will be located in Lima with a total construction area of 6,000
m2 and managed directly by OEFA. OEFA has identified preliminarily through a market study
two vacant commercial lots that meet technical requirements of the construction and operation of
the national laboratory. Although feasibility studies in one of these lots were undertaken, OEFA
can purchase another lot, if the first is not available or if better technical conditions and price can
be found. OEFA will use its own budget to procure the land for its laboratory. The laboratory has
been developed at the feasibility level as a green building by international firms based on
national construction codes and it has incorporated technologies promoted by the program of
Leadership in Energy and Environmental Design (LEED).
15. Component 2: Improve Information and Public Participation for Environmental Quality
Control (US$ 4.83 million, of which US$ 2.72 million will be financed by the Bank Loan). This
component will support (2.1) interconnection of existing environmental quality databases; (2.2)
improvement of SINIA’s capacity of managing environmental quality data; (2.3) development
and deployment of user-friendly IT platforms accessible to the public but tailored to the
information needs of different stakeholders/audiences; (2.4) development and deployment of
effective communication tools for public inputs on environmental quality management issues;
and (2.5) improvement of stakeholders’ capacity to use new environmental information tools. In
30
OECD has promoted GLP principles to “ensure the generation of high quality and reliable test data related to the
safety of industrial chemical substances and preparations.” Such principles “have been created in the context of
harmonising testing procedures for the Mutual Acceptance of Data (MAD).”
(http://www.oecd.org/chemicalsafety/testing/goodlaboratorypracticeglp.htm, last accessed on February 3, 2016)
30
doing so, this component will enable MINAM to improve SINIA’s capacity to properly collect,
store and share environmental quality information generated by various agencies at the national
and local levels and to develop and deploy public participation platforms to facilitate the
dissemination of environmental quality information and public participation in environmental
quality management.
16. Through Subcomponent 2.1 and 2.2, SINIA will develop standard protocols for the
exchange of environmental quality data among all concerned agencies, develop a data storage
platform and upgrade performance of its existing data center and data processing software
(integration and analysis). Through subcomponent 2.1 the project will support the capacity
upgrade of the data center of SENAMHI to enable proper collection, storage and dissemination
of its meteorological, hydrological and air quality data.
17. Subcomponent 2.3 will help MINAM develop five online platforms for the dissemination
of environmental quality information:
an open data platform mostly oriented to specific environmental quality research
activities;
a web portal with environmental quality information presented in formats (maps,
diagrams, figures etc.) that can be easily understood and readily accessible by the public;
smart phone applications that use these devices’ sensors (GPS, camera, gyroscope,
accelerometer etc.) to display environmental quality data dynamically;
software that provides regularly local environmental quality information to local
organizations such as municipal environmental commissions (Comisiones Ambientales
Municipales, CAM) and technical study groups on air quality (Grupos de Estudio
Técnico Ambiental de La Calidad del Aire, GESTA) to support their decision making on
environmental quality management issues; and
a web portal for official access only to raw environmental quality monitoring data
(sensitive information with potential judicial implications).
18. In addition, this activity will develop a software program to help MINAM alert national
and local stakeholders to the risks of potential social conflicts associated with environmental
quality issues. This software will analyze available environmental quality data, reports, and local
environmental complaints to screen potential environmental conflicts caused by air, water or soil
pollution. Based on the analysis, it will issue alerts to enable decision makers to take actions to
address such risks at the early stage.
19. Moreover, this activity will develop a software program to calculate and report the annual
emissions and the compliance situation of industrial activities. Using MINAM approved
methodologies and models, this software will calculate industrial annual emissions of different
categories of industrial activities, including greenhouse gases such as nitrous oxides and ozone.
Such results will be automatically submitted to the Pollutant Release and Transfer Register
(PRTR) database of MINAM.
20. Finally, this activity will develop a software program to support the Attorney General
Office of MINAM to better store and manage its case files on environmental violations.
31
21. Subcomponent 2.4 will develop a software program for interactive communications with
the public on environmental quality management issues. This software will facilitate MINAM to
collect the demands, inquiries and suggestions of the public with or without full access to
information technologies. Together, these tools form a platform that removes technical and
geographic barriers to exchanging environmental quality information between the government
and the public. This subcomponent would include features to induce the participation of women
in environmental quality control by providing two-way information options through apps on
issues of their interest such as waste disposal practices in different neighborhoods, tap water
availability, risk of diseases due to weather conditions, hygiene and sanitation and other.
22. Subcomponent 2.5 will support targeted users to improve their capacity to use SINIA’s
new information systems and tools. Training will be provided to (a) civil society organizations
such as Municipal Air Committees (CAMs) and National Groups for Environmental Technical
Studies (GESTAS) in different regions; (b) national, regional and local officials in charge of
environmental assessment, inspection, monitoring and enforcement; and (c) software engineers
that are interested in developing mobile applications on environmental quality information. In
addition, public awareness raising events will be organized to help the public know and explore
the various features of the new systems and tools.
23. Component 3: Project Management (US$ 4.16 million, this component will be fully
financed by the Borrower). This component will support MINAM and OEFA to properly
implement agreed project activities, through the provision of goods, consultants' services and
operating costs. Special attention will be given to closely coordinating Component 1 and 2
activities in order to ensure the synergy needed to achieve the PDO.
32
Annex 3: Implementation Arrangements
PERU: Enhancement of Environmental Quality Services (P147342)
Project Institutional and Implementation Arrangements
Project administration mechanisms
1. The Republic of Peru is the borrower of this loan. The Ministry of Economy and Finance
(MEF) will represent Peru to enter into a loan agreement with the Bank. MEF will then provide
this loan as budget support to MINAM and OEFA for the implementation of the Project
activities. Below, Figure 1 outlines the general institutional arrangements for the execution of the
Project. The shaded boxes in the flowsheet below represent OEFA’s and MINAM’s units which
the PCU will coordinate closely but not exclusively for project implementation.
Figure 1. Project Institutional Arrangements
2. Project Steering Committee (PSC). MINAM will establish a Project Steering Committee
(Comité Directivo, PSC) to provide policy guidance, oversee project implementation, facilitate
internal and external coordination on project implementation, and help resolve implementation
issues as needed. The PSC will be chaired by the Vice Minister of Environment Management,
and will include the President of OEFA, the General Director of Public Investment, a
representative of the Planning and Budget Office of MINAM, the General Director of
Environmental Information and Research of MINAM and the Project Coordinator.
3. Project Execution Agency. OEFA is the Project Execution Agency of this project. OEFA
will establish a Project Coordination Unit (PCU) under its Presidency for project
OEFA
President
Evaluation Directorate
Supervision Directorate
Fiscalization, Sanction and Incentives Directorate
Decentralized Offices
Project Coordinating Uni
t ( PCU
)
Institutional Control Unit
General
Secretariat
Legal Office Office of
Administration ( OGA )
Vice Ministry of Environmental Management
MINAM
Vice Ministy of Strategic
Development of Natural Resurces
Project Steering Committee
DGPNIGA DGIIA
Administration Area
Project Technical
Area
,
DGCA
Component 2 (PIP 2)
Component 1 (PIP 1)
Continuous line: Functional institutional relationship Dashed line: Institutional links for project implementation
Office of Administration (OA)
Office of
Office of
Planning and Budgeting
Communications and Citizen
33
implementation. The PCU will report directly to the PSC and the President of OEFA. A
Coordinator will be appointed to lead the PCU. The Coordinator will be a PSC member and
serve as the Secretary of the PSC. The PCU will have sufficient autonomy to make decisions on
implementation issues in coordination with related agencies and the Bank. The PCU will include
three groups: a technical group, a M&E group, and an administration group. The composition,
duties, and responsibilities of these groups are set forth in the POM reviewed and agreed by the
Bank. The recruitment of the PCU Coordinator, coordinators for the three groups, and technical
specialists on environment, procurement, financial management, and M&E will be done through
a competitive process in accordance with the agreed POM.
4. The PCU will have the following responsibilities:
(a) Project Management based on the agreed POM
Interact with the Bank and coordinate with other Directorates of OEFA, the Departments
of MINAM and SENAMHI.
Monitor and assess project implementation progress and report to the Executive President
of OEFA, PSC and the Bank.
Prepare and submit to the Bank, by the agreed deadlines, project information and project
management reports.
Update the POM as necessary.
(b) Procurement and contract execution
Coordinate with and supervise other Directorates/Departments of OEFA and MINAM
regarding the preparation of the estimated budgets, terms of reference, contracts and
technical parts of bidding documents, request for proposals, including consulting services
and goods.
Prepare bidding documents, request for proposals and bid/proposal evaluation reports.
Liaise with the Bank and prepare and submit requests for No Objections.
Ensure the execution of procurement and bidding norms and processes described in the
POM, such as publication of bids and expressions of interest, conduct bid-opening
sessions, elaborate bid record opening and respond to bidder’s request for clarifications.
Prepare, update and monitor the procurement plan.
Supervise the implementation of contracts execution.
Organize the cost and quality audit of the works financed by the Project.
5. The PCU located in OEFA will coordinate with MINAM regarding the co-execution of
the project’s Component 2, Improve Information and Public Participation for Environmental
Quality Control, and Subcomponent 1.1, Environmental Quality Standards and Guidelines. The
PCU will fund a technical team including a technical coordinator and a financial/procurement
and administrative specialist to support MINAM that will be located in MINAM. Both the POM
and an agreement entered into MINAM with OEFA will set forth in detail the responsibilities
and duties of the PCU/OEFA and MINAM for the co-execution of the project.
6. OEFA’s office of administration (OEFA OA) with the support of the PCU will perform
financial management and disbursement activities, including:
Preparation of the annual budgetary request for Project funding.
34
Carrying out the accounting and financial management of the loan funds and counterpart
resources, including the project's financial statements/reports.
Maintaining the Project administrative and fiduciary information updated and available.
Managing and ensuring payments for the contracts financed under the project.
Preparing and submitting disbursement requests to the Bank.
Organizing external audits.
Ensuring that all activities and procedures comply with the POM.
7. Project Operation Manual. Project execution will be governed by a POM that was
developed during project preparation. The manual establishes operating guidelines and
procedures regarding: (i) the roles and responsibilities of the entities that participate in the
project; (ii) operating procedures for planning and scheduling the activities to be financed,
including calls for proposals, selection and hiring of firms; (iii) fiduciary and procurement
instructions; (iv) procedures for environmental and social management of the project; and (v)
operating procedures for implementing the project’s monitoring and evaluation activities.
Approval of the POM in accordance with terms agreed upon with the Bank is an effectiveness
condition for the loan.
8. Cooperation Agreements. To ensure the terms of cooperation for project execution,
collaboration agreements are to be signed between OEFA and MINAM, SENAMHI and ANA.
These agreements will establish the terms for mutual cooperation between the entities involved
and will describe the activities covered by the agreements, the commitments of the parties,
including operation and maintenance of investments, and any other terms required for project
execution. The timing and condition of signing and entering into force of collaboration
agreements between the OEFA (PCU) and the MINAM and SENAMHI are defined in the legal
agreement. OEFA will provide IT equipment and radiosonde to SENAMHI. SENAMHI will
provide environmental quality and meteorological data to MINAM. MINAM and ANA will
enter into an agreement for ensuring interoperability of their information systems to exchange
water quality data.
Financial Management, Disbursements and Procurement
Financial Management
9. The Bank has conducted a Financial Management Capacity Assessment31
(FMA) for the
Project. Based on the work done with OEFA, this section reflects a general description of the
financial management and funds flow arrangements that will be put in place by OEFA to
implement the project and reflected in the POM.
10. OEFA's Administrative Office (AO) will manage the financial including disbursement
aspects of project implementation. However, the technical and procurement aspects of the
component 2 and subcomponent 1 of component 1 will be under MINAM responsibility.
Therefore, OEFA will need to work in close coordination with MINAM for the implementation
31
In accordance with Financial Management Manual for World Bank Investment Project Financing (December 11,
2014) and OP/BP 10.00.
35
of this component. Project implementation will comply with Peru’s laws governing budget and
financial management, including the use of the integrated system for financial administration
(SIAF) and the General Chart of Accounts established in SIAF. The General Comptroller Office
will carry over the selection process of the audit firm to audit the project. The loan proceeds will
be disbursed to a Designated Bank Account opened at Banco de la Nación.
11. The remaining financial management risks to the operation are: (i) establishment of the
Project Coordinating Unit (PCU) within OEFA; (ii) timely appointment of additional fiduciary
staff within the PCU with the capacity to rapidly get acquainted with FM guidelines to avoid
situations of misprocurement or ineligible expenditures; (iii) effective coordination between
OEFA and MINAM to implement component 1 and 2 of the project; (iv) availability of
counterpart budget funds, as OEFA will provide funds from its directly bill revenues; and (v) the
inter-institutional agreement between MINAM and OEFA to manage the project.
12. The financial management and disbursement arrangements have been reflected in the
POM. Approval of the POM is a condition of effectiveness. So far, OEFA has been able to
complete the following actions: (i) agreement on format of the financial information reports that
will be prepared by the PCU, disbursements, and audits; (ii) OEFA’s decision that it will use the
SIAF (Sistema Integrado de Información Financiera) and the Module for Project Execution
(MEP) of SIAF; and (iii) submitted the POM, which includes internal control processes and
procedures, and financial management and disbursement arrangements specific to this project
which are acceptable to the Bank.
13. By effectiveness the following will be completed: (i) establishment of the PCU within
OEFA; (ii) hiring of key fiduciary staff (PCU coordinator, lawyer, procurement specialist and
financial specialist) that preferably have previous experience in implementing Bank projects so
that staff can rapidly gain familiarity with the applicable requirements to support project
implementation; (iii) signing of inter-institutional agreements that includes clear roles and
responsibilities for MINAM and OEFA, including identification of key controls that need to be
strengthened and adapted considering the design of the project; and (iv) adoption of the POM.
14. The overall conclusion of this assessment is that the project has a substantial financial
management risk. But, once the mitigating measures have been put in place and the pending
activities under staffing, budget, accounting, reporting and internal controls have been
completed, the proposed Financial Management arrangements will meet the Bank’s minimum
financial management requirements.
Financial Management Arrangements
Organization and Staffing.
15. OEFA will perform the financial management function for the implementation of project
funds that will be the responsibility of OEFA’s AO. Budget functions will be the responsibility
of OEFA’s Budget and Planning Office (B&PO). The AO and the B&PO have qualified and
experienced staff. The PCU will also have a fiduciary staff that will include an administrator
specialist, procurement specialist, accountant and financial specialist. These additional staff
36
should have previous experience in Bank supported projects who will support AO and OEFA’s
BPO in implementing the project. Component 2 and Subcomponent 1.1 of Component 1 will be
technically implemented by MINAM in close coordination with OEFA. Specific roles and
responsibilities of the participating entities, the OEFA AO, and the PCU have been established in
the POM.
Planning and Budgeting.
16. Preparation of the annual work program and budgets will be in accordance with the
procedures established by MEF through its Dirección General de Presupuesto Público. Those
procedures will be complemented by specific processes and procedures established in the POM
(preparation of an annual operating plan with at least semi-annual budget, including all source of
financing – IBRD and counterpart funds). Counterpart funds will come from: (i) ordinary
resources; and (ii) OEFA’s directly billed revenues (recursos directamente recaudados). OEFA
collects these revenues from public and private entities in Peru that make mandatory
contributions regulated by the Law No. 27332. To ensure an adequate budget, OEFA will
require: (1) timely provision for yearly approval of resources established in the work plan and
budget; (2) proper recording of the approved budget in the respective information systems
following a classification by project component/subcomponent; and, (3) timely recording of
commitments, accruals, and payments, which will assist with adequate budget monitoring and
provide accurate information on project commitments for programming purposes. The Loan
Agreement establishes that OEFA will make the necessary budget provision for the project
counterpart funds according to the annual operational plan.
Accounting and Information System.
17. OEFA will comply with Peru’s laws governing budget and financial management,
including the use of SIAF and the General Chart of Accounts established in SIAF. Accounting
and payment transactions of the project will be recorded in SIAF. Considering the nature of
project activities and information needs for monitoring purpose, OEFA will complement the use
of SIAF with the module of project execution (MEP) of SIAF for further issuance of financial
reports and prepare statements of expenditures according to the project components in US
Dollars.
Financial reporting
18. The PCU will prepare the interim financial reports (IFRs) from the transaction
information recorded in SIAF, which will be downloaded into the module of project execution
(MEP-SIAF). The IFRs will include: i) a statement of sources and uses of funds, including
reconciling items (as needed) and cash balances, with expenditures classified by project
component/subcomponent; ii) a statement of uses of funds, reporting the current semester and the
accumulated operations against ongoing plans with footnotes explaining any important
variances. The reports will include loan proceeds and local counterpart funds. The IFRs will be
prepared in local currency as well as US Dollars and submitted to the Bank on a semi-annual
basis no later than 45 days after the end of each calendar semester. The format and content of the
IFRs have been defined for the project.
37
19. On an annual basis, the PCU will also prepare project financial statements, including
cumulative figures, for the year and as of the end of the year, and explanatory notes in
accordance with International Public Sector Accounting Standards. Those financial statements,
duly audited in accordance with Bank’s requirements will be submitted to the Bank within the
six months after the end of the Government’s fiscal year (December 31). Working papers for the
preparation of the semester and annual financial statements will be maintained by the PIU and
made easily accessible to Bank implementation support missions and to external auditors. The
table below summarizes the financial reports to be prepared under the project.
Deadlines for Financial Reporting
Period Due date
Semester 1 IFR August 15th
of each year
Semester 2 IFR February 15th
of each
year
Annual Financial
Statements
February 28th
of each
year
Internal Controls and Audit Arrangements
20. Internal Controls. Overall, OEFA has to comply with local requirements related to
financial management, including internal controls and procedures. In addition, the Bank has
agreed with OEFA on specific processes and procedures for project implementation. Procedures
for approval and processing of payments to suppliers and service providers for all components
will be reviewed and agreed with the Bank. Those procedures will be reflected in the POM
showing clear segregation of responsibilities among MINAM, OEFA, PCU and OEFA AO in
technical and fiduciary aspects. The draft version of the POM (Fiduciary chapter) has been
submitted to the Bank and reflects adequate internal control processes and procedures to
implement the project.
21. Internal Audit. MINAM’s organizational structure includes an Internal Control Office
(OCI) that will provide oversight to the PCU ascribed to OEFA. The OCI may play a role in ex-
post internal control on project transactions.
22. External Audit. Annual audit reports on project financial statements, including
management letters, should be submitted to the Bank within six months of the end of the
Borrower’s fiscal year (December 31). The audit should be conducted by an independent audit
firm acceptable to the Bank and under terms of reference approved by the Bank. The selection of
the audit firm should be performed through the General Audit Comptroller Office. Audit cost can
be financed out of loan proceeds. The scope of the audit would be defined by the audit term of
reference (ToR) approved by the Bank and based on project specific requirements and
responding, as appropriate, to identified risks. The project financial statements that the auditors
will require should include the Statement of Sources and Uses of Funds, Statement of
Cumulative Investments and Statement of Expenditures. The auditors will also prepare a
38
management letter regarding the internal controls of the project. Audit requirements would
include:
Audit type Due date
Project financial statements June 30
Special Opinion:
Statement of Expenditures
June 30
Funds Flow and Disbursement Arrangements
Funds Flow Arrangements:
23. Bank Loan proceeds will follow the Bank’s disbursement policies and procedures as
described in the Disbursement Letter. The Bank will disburse Loan proceeds using Advance,
Reimbursement, and Direct Payments methods.
24. Designated Account. A Designated Account (DA) in US Dollars would be opened and
maintained in the Banco de la Nación by the PCU-OEFA, who would have direct access to funds
advanced by the Bank to the DA. Funds deposited into the DA as advances, would follow Bank’s
disbursement policies and procedures, to be described in the legal agreement and Disbursement
Letter. To process payments, the PCU-OEFA will be able to withdraw the required amount from
the DA to a local currency bank account from where payments would be made to consultants,
suppliers, and beneficiaries’ bank accounts. The payments related to services and contracts for
the component 2 and subcomponent 1.1 under MINAM responsibility will be made by OEFA
upon request by MINAM, following the procedures established in the POM and the Agreement
between MINAM and OEFA.
25. Counterpart funds. OEFA will manage the counterpart funds for the project using the
Single Treasury Account established by the Government. Funds for the project will be identified
with a specific project code and account in SIAF to process payments.
26. Retroactive Financing. A withdrawal up to an aggregate amount not to exceed US$ 8
million may be made for payments for eligible expenditures on or before November 8, 2016 or
before the date of the Loan Agreement.
Disbursement arrangements:
27. The following disbursement methods may be used to withdraw funds from the loan: (a)
advance; (b) reimbursement, and (c) direct payment.
Advance method: the DA will have a ceiling of US$ 2,000,000.
Direct payment: The minimum application size for direct payment request would be US$
1,000,000.
39
Reimbursement method: The minimum application size for reimbursement method would
be US$ 1,000,000.
28. Documentation requirements. Statement of Expenditures (SOE). Supporting
documentation for documenting project expenditures under the disbursement methods authorized
for the project should be in accordance with the provisions established under the Disbursement
Letter.
29. Disbursement deadline date: The Disbursement Deadline Date is four (4) months after
the Closing Date specified in the Loan Agreement. Any changes to this date will be notified by
the Bank.
30. Disbursement Categories: The Bank will not finance land acquisition required for the
construction of OEFA’s laboratories or air monitoring stations. Loan proceeds will be disbursed
against the following expenditure categories:
Category Amount of the Loan
Allocated
(expressed in USD)
Percentage of Expenditures to
be financed
(inclusive of Taxes)
(1) Goods, works, non-consulting
services, and consultants’
services required under Part 1 of
the Project
37,277,479
100%
(2) Goods, non-consulting
services, and consultants’
services required under Part 2 of
the Project
2,722,521
100%
TOTAL AMOUNT 40,000,000
* Including tax
31. Bank Supervision. Financial management supervision will be done using a risk based
approach and include on-site and off-site supervision. On-site supervision will be carried out at
least twice a year. Off-site supervision will be comprised of a desk review of interim financial
reports and audited financial statements.
Procurement
A. General
32. Procurement for the Project will be carried out in accordance with the World Bank’s
"Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans
and IDA Credits & Grants by World Bank Borrowers" dated January 2011 revised July 2014;
and "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits
& Grants by World Bank Borrowers" dated January 2011 revised July 2014, and the provisions
stipulated in the Loan Agreement. For each contract to be financed by the Loan, the different
procurement methods or consultant selection methods, the need for pre-qualification, estimated
40
costs, prior review requirements, and time frame are agreed between the Borrower and the Bank
in the Procurement Plan. The Borrower has prepared a Preliminary Procurement Plan for the
whole Project, and a detailed and comprehensive procurement plan that includes all contracts for
which bid invitations and invitations for proposals are to be issued in the first 18 months of
project implementation. The Procurement Plan will be available at the Systematic Tracking of
Exchanges in Procurement (STEP). Goods and works shall be procured under contracts awarded
on the basis of International Competitive Bidding, National Competitive Bidding, Shopping or
Direct Contracting. Consultants’ services shall be procured under contracts awarded on the basis
of Quality and Cost-based Selection, Quality-Based Selection, Selection under a Fixed Budget,
Least Cost Selection, Selection Based on the Consultants’ Qualifications, Single Source
Selection and, Procedures set forth in Section V of the Consultant Guidelines for the Selection of
Individual Consultants, including Sole Source Selection for Individual Consultants.
33. Procurement of Works. Works for this project will include the construction of an
environmental analysis laboratory. To the extent possible, contracts for these Civil Works will
be grouped in bidding packages. Contracts with estimated values of more than US$10,000,000
equivalent will be procured following ICB procedures. Contracts with estimated values below
US$10,000,000 equivalent per contract may be procured using NCB procedures. Contracts
which cannot be grouped into larger bidding packages and estimated to cost less than
US$250,000 per contract may be procured using Shopping procedures. The procurement will be
done using Bank’s SBD and a model of request for quotations satisfactory to the Bank included
in the POM.
34. Procurement of Goods. Goods procured under this project will include equipment
related to the monitoring of air, soil and water quality. To the extent possible, contracts for these
goods will be grouped in bidding packages of more than US$2,000,000 equivalent and procured
following ICB procedures. Contracts with estimated values below this threshold per contract
may be procured using NCB procedures. Contracts for goods which cannot be grouped into
larger bidding packages and estimated to cost less than US$50,000 per contract may be procured
using Shopping (national/international) procedures. The procurement will be done using Bank’s
SBD for all ICB and National SBD and a model of request of quotations agreed with (or
satisfactory to) the Bank in the POM.
35. Selection of Consultants. Short lists of consultants for services estimated to cost less
than US$350,000 equivalent per contract may be composed entirely of national consultants in
accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Where firms are
not required, individual consultants will be hired according to Section V of the Guidelines.
B. Assessment of the agency’s capacity to implement procurement
36. Country. The national procurement system of Peru has made significant progress in the
last few years, particularly with regard to access to information and adoption of standard bidding
documents. However, it still suffers from setbacks that affect both the efficiency and
transparency of government purchasing. Of most concern is the distortion of competition
generated by the use of the referential price and the permanent concern for literal compliance
41
with the requirements set forth in the national regulatory framework, as well as the lack of
procurement capacity in some sectors, particularly at the local level.
37. Agency. OEFA is the project executing agency, where the PCU will be created for
coordinating project implementation. The PCU will be in charge of the procurement aspects of
the Project.
38. An assessment of the implementation agency’s capacity to implement procurement
actions for the project was carried out. The capacity assessment looked into OEFA’s: (a)
organizational structure, (b) facilities and support capacity, (c) record-keeping and filing
systems, (d) procurement planning and monitoring/control systems used, and (e) capacity to meet
the Bank’s procurement contract reporting requirements. It also reviewed the procurement
arrangements of the Procurement Plan.
39. The key risks concerning implementation of project procurement are lack of prior
experience with large investment projects and skilled staff to implement Bank-financed projects.
Bank procurement training to both PCU staff and OEFA will be provided by Bank Procurement
Specialists not later than project launching mission.
40. The overall risk for procurement is rated Substantial. The corrective mitigating measures
are:
MITIGATING MEASURES STAGE
A draft POM satisfactory to the WB Delivered before negotiations
A draft Procurement Plan for the first 18 months Delivered before negotiations
Standard Bidding Documents satisfactory to the
WB
Delivered before negotiations
The hiring of a skilled procurement staff By effectiveness
The Procurement Plan must be included and
managed through STEP
During implementation
C. Procurement Plan
I. GENERAL
41. Bank’s approval Date of the procurement Plan: November 8, 2016
Date of General Procurement Notice: Third Quarter 2017
Period covered by this procurement plan: 18 months
II. Goods, Works and non-consulting services.
42. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as
stated in Appendix 1 to the Guidelines for Procurement:
42
Thresholds for procurement methods and prior review (thousands of US$)
Expenditure
Category
Contract Value (Thresholds)
US $ thousands
Procurement
Method
Contracts Subject
to Prior Review
1. Works >10.000 ICB
According to
procurement plan
250 – 10,000 NCB
<250 Shopping
Regardless the value DC
2. Goods >2000 ICB
According to
procurement plan
50 - 2000 NCB
<50 Shopping
Regardless the value DC
Note: ICB = International Competitive Bidding
NCB = National Competitive Bidding
DC = Direct Contracting
Reference to Project Operational/Procurement Manual:
43. The Borrower, as part of Project’s preparation, will prepare the POM which provides
detailed procurement information for project’s implementation.
Summary of the Procurement Packages to be procured under ICB:
1 2 3 4 5 6 7
Ref.
No.
Description Estimated
Cost US$
million
Packages Domestic
Preference
(yes/no)
Review by Bank
(Prior/Post)
Comments
CIVIL WORKS
Construction and
equipment of
Laboratory
29.7 No Prior
GOODS
Equipment for Air
Quality
Monitoring
6.6 No Prior
Equipment for
Water Monitoring
6.8 No Prior
IT equipment for
MINAM’s and
SENAMHI’s Data
Center
2.1 No Prior
43
III. Selection of Consultants
44. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated
in Appendix 1 to the Guidelines Selection and Employment of Consultants:
Thresholds for methods and prior review (thousands of US$)
Consulting Services Contract Value (Thresholds) US
$ thousands Procurement Method
Contracts Subject to
Prior Review
3.a Firms >100 QCBS, QBS, FBS, LCS
According to Procurement
Plan
<100
QCBS, QBS, FBS, LCS,
CQS
Regardless the value SSS
3.b Individuals
Comparison of 3 CVs in
accordance with Chapter
V of the Guidelines
According to Procurement
Plan
Note:
QCBS = Quality- and Cost-Based Selection
QBS = Quality-Based Selection
FBS = Fixed Budget Selection
LCS = Least-Cost Selection
CQS = Selection Based on Consultants' Qualifications
SSS: Single Source Selection
45. Short list comprising entirely of national consultants: Short list of consultants for
services, estimated to cost less than $350,000 equivalent per contract, may be comprised entirely
of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant
Guidelines.
Consultancy Assignments (involving international competition), with Selection Methods
and Time Schedule
1 2 3 4 5
Ref. No. Description of Assignment
Estimated
Cost US$
million
Processes Review by Bank
(Prior/Post)
Firms
Design and Planning of Air and Water
Quality Monitoring Network
4.3 Prior
Supervision of Design and Construction
of Laboratory
2.3 Prior
Technical Assistance in Implementation,
Development and/or Validation to
comply with ISO 17025, 14001, 18001
1.0 Prior
44
46. In addition to the prior review supervision to be carried out from WB offices, the capacity
assessment of OEFA has recommended annual supervision missions to visit the field to carry out
post review of procurement actions.
Environmental and Social (including safeguards)
47. This project has been rated as “Category B” following the Operational Policy 4.01.
OEFA prepared an Environmental and Social Management Framework (ESMF) for the project to
provide guidance on potential issues that could arise during project implementation. The Bank
reviewed and approved the ESMF. Physical Cultural Resources OP/ BP 4.11 is triggered because
of potential chance finds of physical cultural resources – especially those of archaeological
significance – that could be identified during the installation of air quality monitoring networks,
construction of the national environmental laboratory and minor remodeling works. The ESMF
includes specific screening provisions for evaluating potential impacts on cultural resources and
guidance on chance finds procedures. The ESMF also assess and provide guidance on handling
and disposal of chemical reagents and samples.
48. The ESMF was consulted with key stakeholders before appraisal (October 7, 2016), and
disclosed locally through MINAM and OEFA websites (September 26, 2016). MINAM and
OEFA are responsible for compliance with the Bank safeguards requirements and with the
overall environmental and social supervision of the Project and its compliance with the Peruvian
Environmental Law and other applicable legislation.
49. The project’s investment activities – construction of the national environmental
laboratory – will require acquisition of a vacant commercial lot of 6,000 m2 from a private
owner. The team social specialist visited the possible site to be acquired by OEFA and found no
resettlement issues.32
The installation of air quality and hydrometeorology stations in Lima,
Trujillo, Chiclayo, Piura, Iquitos, Huancayo and Cusco will require small areas (5 to 8 m2 per
each station), likely in public lands, which given the small amount of land required, there is
always a chance to find areas that are not occupied and do not have assets that can be affected.33
In addition, in the definitive selection of sites where the monitoring stations will be located,
OEFA will not consider sites that could involve involuntary resettlement. As such, the project
does not trigger the Bank’s OP 4.12 Involuntary Resettlement Policy.
Potential Environmental Impacts
32
At this stage of the project preparation there is no guarantee that the identified plot of land will be used for the
construction of the laboratory. The borrower has to have the project approved first in order to be allowed to launch a
bidding process for purchasing land, and there is no guarantee that by then the selected area will still be available.
For this reason the borrower has agreed with the Bank that no land will be purchased if there are third parties
interests involved, such as disputed property rights, or presence of illegal occupants, and land that could trigger OP
4.12 Involuntary Resettlement Policy will not be considered. 33
Results from updated emissions inventories and dispersion models are required to set the definitive location of the
air monitoring stations. This information will be collected and analyzed during project implementation
45
50. Potentially adverse social and environmental impacts are expected to be small and
reversible. They will be avoided or minimized through adequate project design and mitigation
measures.
Environmental System in compliance with Bank’s safeguards requirements to be applied for the
Project.
51. Being an investment operation, the Project must be in compliance with Bank’s safeguards
requirements, including public consultation and disclosure section. The responsibilities for
supervising the environmental compliance during installation of air quality monitoring networks,
laboratory construction and minor remodeling works are clearly defined in the ESMF as well as
the instruments in place to ensure that contractors implement any corrective actions identified
when these activities are carried out.
Peruvian environmental regulatory framework
52. The Peruvian Constitution entitles citizens for a clean environment, access of information
and participation, respect to cultural diversity, etc. The main environmental legal framework
protecting environment (water, soil, forest, air) protected areas, flora and fauna, is the Law No.
28611, General Law of the Environment and Law of the National System of Environmental
Management (Law 28245) and its regulations approved by Supreme Decree 008-2005-PCM;
Law on the National System for Environmental Impact Evaluation (Law 27446) and its
regulations approved by Supreme Decree 019-2009-MINAM; and others regulations. Also, the
Ley General del Patrimonio Cultural de la Nación, Ley Nº 28296, should be considered for the
protection of Physical Cultural Resources.
53. In line with environmental regulations of Peru, OEFA developed a Preliminary
Environmental Assessment (EVAP) to comply with the National System of Environmental
Impact Assessment (SEIA) and the National Public Investment System (SNIP). In July 2015, the
EVAP was reviewed by the Ministry of Production, which categorized the project as category 2.
Therefore, OEFA will prepare an environmental impact assessment after the land is purchased
and the when the project’s detail technical studies are prepared. During project implementation,
all licenses and environmental permits will be in place.
Monitoring & Evaluation
54. The OEFA PCU will be responsible for M&E activities of this project. Achievement of
Project objectives will be measured by a combination of indicators, as shown in the Results
Framework (Annex 1). The PCU will prepare a progress report and send it to the Bank no later
than 60 days after the end of each six-month period. These reports will focus on attainment of the
intermediate indicators and progress on outcomes and will identify the problems encountered and
the corrective measures adopted. No later than in the final quarter of each year during project
execution, the PCU will submit the annual work plan for the following year to the Bank’s
satisfaction. In addition, the PCU will carry out two independent evaluations (one midterm and
one final) funded with project resources: (a) the midterm evaluation will be presented to the
Bank no later than 90 days after 50% of the loan proceeds have been executed; and (b) the final
46
evaluation will be presented no later than 90 days after 90% of the loan proceeds have been
executed. These evaluation reports will include an assessment of the quality of the monitoring
system data, the degree of achievement of intermediate indicators and outcomes and progress on
expected impacts as set forth in the Results Matrix, and the level of compliance with the POM,
including environmental and social management and monitoring plan.
47
Annex 4: Implementation Support Plan
PERU: Enhancement of Environmental Quality Services (P147342)
Strategy and Approach for Implementation Support
1. The Project will be the first World Bank-financed project implemented by OEFA. Special
attention will be directed to building institutional capacity for implementation and timely
implementation of the risk mitigation measures.
2. Implementation support for the Project will focus, on the one hand, on strengthening the
technical skills of MINAM, OEFA, including the PCU, staff involved in the implementation of
the project by training them on cutting edge global practices both in environmental monitoring
and analytics and in the promotion of public participation through web-based technologies. On
the other hand, implementation support will focus on the functions and activities typically
monitored by World Bank during supervision, including monitoring of technical activities,
management functions (administration, financial management, procurement), and compliance
with safeguards policies.
3. The implementation support strategy is flexible and is likely to be amended during
implementation in response to the evolving needs of the Project, including changes in the
institutional context. It includes the following main elements:
World Bank implementation support will begin immediately after Board Approval, to
help the Borrower achieve loan effectiveness in a timely manner (this will involve formal
establishment of the PSC and PCU, including recruitment of key staff). The frequency of
implementation support missions will be higher in the initial phase of implementation
(possibly up to three missions during the first year and second year) to closely monitor
the launch of the Project, and then it will decrease to the usual (two missions per year)
frequency once the Project is running smoothly.
Since OEFA has no experience with the Bank-financed operations, fiduciary and
safeguards trainings will be provided to the staff in the PCU. In addition to carrying out
their usual implementation support functions, the Bank’s fiduciary and safeguards
specialists will be available to provide close support and detailed, hands-on guidance to
the counterpart during the initial months following effectiveness.
Exposing OEFA and MINAM staff involved with the implementation of the project to
state of the art technologies and institutional arrangements for effective environmental
monitoring, dissemination of environmental data and opening of participation channels in
environmental monitoring to potentially affected communities or citizens. Early during
Project implementation a study trip to Korea will expose key decision makers and staff of
OEFA and MINAM to innovative practices on environmental quality control and user-
friendly dissemination of environmental data.
The Implementation Support Strategy will be revisited regularly, taking into account
progress in implementation and conducting continuous risk assessment.
48
4. Technical Support. The Project will support the Government’s capacity to produce and
make available reliable environmental quality data. The Bank will include technical specialists in
environmental quality management, governance and information technologies drawn from within
the institution as well as global-level experts. Technical specialists with expertise in other areas
may be recruited, as necessary. Field visits will focus on verifying compliance with the policies
and procedures spelled out in the POM, identifying bottlenecks that may be impeding
implementation progress, and offering recommendations designed to overcome those
bottlenecks.
5. Land Acquisition. The Bank will closely follow the process of acquiring land for the
construction of the Laboratory of OEFA. The Bank will provide support to OEFA to ensure that
no land will be purchased if there are third parties interests involved, such as disputed property
rights, or the presence of illegal occupants,
6. Capacity on Bank Procedures. Given that OEFA has no previous experience with the
Bank-financed projects, it is likely that many of those involved in implementation will need to
familiarize themselves with the Bank policies and procedures. Therefore, close implementation
support to the staff of the PCU will be a key in the early stage. The Bank is prepared to schedule
additional implementation support missions as needed during the first two years of
implementation.
7. Fiduciary Aspects. The World Bank fiduciary specialists will provide early procurement
support to OEFA-PCU. The Bank Procurement Specialist and Financial Management Specialist
assigned to the Project are both based in the Country, and thus are available to meet the
counterparts and provide close and hands-on support to the PCU staff including instructions to
avoid initial delays in submitting withdrawal applications, performing financial management
activities, processing procurement requests, etc., in addition to joining regular implementation
support missions. During implementation, the FM Specialist will also review the annual audit
reports and the semester IFRs.
8. Safeguard Compliance. The World Bank Environmental Safeguards Specialist and
Social Specialist will provide support during the implementation phase. Environmental and
Social Safeguards Reviews will be carried out as part of implementation support mission, i.e.,
twice per year on average. Bank specialists will review documents produced by the PCU and
provide additional capacity building to the staff of the PCU.
9. Monitoring and Evaluation: The overall responsibility for project M&E will lie with
the OEFA PCU. The PCU will monitor and document project implementation progress,
including execution of all activities, procurement and contractual activities, accounting and
financial records, compliance with safeguards policies and other operational and administrative
matters. The POM will specify M&E responsibilities, including data requirements, responsible
parties, frequency and timing, and reporting arrangements. During implementation, the Bank will
monitor and evaluate implementation progress and results through regular implementation
support missions and the mid-term review.
49
Implementation Support Plan
10. The main areas of focus for project implementation support activities are summarized
below. Implementation support frequency will be high during the first 12 months of
implementation. Implementation support missions will be reduced from three to two after the
second year. However, the support provided by country office-based members of the task team
will remain continuous.
Time Focus Skills Needed Resource Estimate Partner Role
First
twelve
months
Project start-up
Fiduciary Processes
Technical experts
(laboratory, air
and water
monitoring
networks)
Procurement
Management
Fiduciary
Management
3 implementation
support missions
Support from the
country office
Experts will
join the
technical
missions as
needed
12 – 24
months Project
implementation
Procurement of
laboratories and
monitoring networks
Technical experts
(laboratory)
Procurement
Management
Fiduciary
Management
2 implementation
support missions
Support from the
country office
Experts will
join the
technical
missions as
needed
24-48
months Project
implementation
Communication
activities
Monitoring
Reporting
Innovation
Management
Communication
M&E
Auditing and
accounting
2 implementation
support missions
Support from the
country office
Experts will
join the
technical
missions as
needed
Skills Needed Number of Staff Weeks Number of Trips
Task Team Leader 15 weeks in Year 1
15 weeks in Year 2
12 weeks per year (Year 3 to 5)
3 in Years 1 and 2
2 in Years 3 to 5
Technical Specialists/Experts 3 x 4 weeks per year 3 trips in Year 1
2 trips in Years 2 to 4
Procurement Specialist 4 weeks per year In country office
Financial Management Specialist 4 weeks per year In country office
Environmental Specialist 2 weeks per year 2 trips per year
Social Specialist 1 week per year 1 trip in Year 1 and 2
50
Annex 5: Economic Analysis
PERU: Enhancement of Environmental Quality Services (P147342)
Introduction
1. The economic analysis is broken down by component. The first component
(Environmental Monitoring and Analysis) represents nearly 87 percent of the total resource
allocation, while the second component (Environmental Monitoring and Analysis) comprises
nearly 7 percent of the total budget. The rest finances project management.
2. Component 1 will provide support to MINAM34
and OEFA35
to properly carry out their
responsibility to monitor and analyzing air, water and soil quality based on an enhanced
regulatory framework, development of capacities and infrastructure for effective environmental
monitoring, and strengthening of analytical and quality control/quality assurance capacities.
Component 2 will support SINIA36
to properly collect, store and share environmental quality
information generated by various agencies at the national and local levels; and the development
and deployment of public participation platforms.
3. The economic analysis follows a cost-benefit approach. Therefore, the analysis assesses
and monetize the major economic benefits and compare them to project costs to estimate the
project’s economic returns for the society. Results show that the US$70 million to be invested in
the Project are expected to generate efficiency benefits with a net present value of US$ 41
million (low case scenario) up to US$ 84 million (high case scenario). The internal rate of return
(IRR) to this investment is estimated to be between 20% and 30%. Results are robust to adverse
changes in the key parameters.
Public Rationale
4. In addition to quantitative assessment, the Bank’s economic analysis guidelines require
an assessment of the public funding justification for all Bank lending programs. A public
funding justification requires that either an important market failure be present, or that additional
investment is needed to remedy a policy/government failure, and that the intervention address the
relevant failure(s) in some convincing way.
5. After analyzing the project, it is clear that in all areas of the program there are classic
market failures that justify public funding from an efficiency standpoint, as long as delivery is
well designed and cost effective. The project aims to strengthen public institutions (MINAM
and OEFA for Component 1; and SINIA for Component 2), which provide public goods to the
Peruvian society in different forms. Mitigating impacts, promoting better management,
increasing regulatory oversight, and improving enforcement and compliance with better data and
regulations clearly justify public funding in order to achieve well functioning markets.
Consequently, given its public good nature, the justification is clear since the Bank’s investment
will catalyze better and more efficient action on the part of public agencies
34
Ministry of Environment (Ministerio del Ambiente). 35
Agency for Environmental Assessment and Enforcement (Organismo de Evaluación y Fiscalización Ambiental). 36
National System of Environmental Information (Sistema Nacional de Información Ambiental).
51
Analytical Approach
Component 1
6. Additional benefits were calculated at the individual level and then aggregated up to the
project level. In the case of Component 1, the project aims to enhance the regulatory framework
and analytical capacity of the country and OEFA, and develop further monitoring stations with
the final objective of generating information and capacity that can contribute to reduce pollution
levels. The economic analysis focuses on air pollution and unimproved water and sanitation
sources.
7. Given that the benefits of environmental monitoring are difficult to measure directly,
analysis assumes that 10 percent of potential benefits resulting from lower pollution or improved
sources are attributed to the project. Providing information by itself might not have a direct
social value, but it drives actions and policies. In the case of air pollution, for instance, new
monitoring stations were put into operation in Lima downtown in early 2000s.37
The avverage
level of PM 2.5 in 2001 was 80 ug/m3 (Miranda, 2007)38
, while in 2015 it dropped to 24 ug/m3
(DIGESA, 2015)39
, just under the national standard of 25 ug/m3. Monitoring pollution levels
helped develop policies and contributed to reducing the air pollution by 70 percent. Therefore,
the assumption of 10 percent reduction is rather conservative.
8. Potential benefits are calculated by using cost of environmental degradation estimates.40
As mentioned before, a conservative 10 percent is assumed to be brought by the newly
established monitoring system in cities that currently do not have any monitoring station. In the
case of air pollution the estimated health value includes the impacts of outdoor air pollution and
lead pollution. National estimates were extrapolated – based on population density – for the
cities where the new monitoring stations are going to be constructed, i.e. Piura, Chiclayo,
Trujillo, Huancayo, Cusco and Iquitos. Estimates were expanded for 13 years taking into account
future mortality and morbidity rates. In the case of water-related costs, it also assumes a 10
percent reduction, but only for Metropolitan Lima where the new water monitoring systems will
be implemented.
Table 1: Estimated value per capita (US Dollars)
Low Medium High
Outdoor Air Pollution 55 58 65
Lead (Pb) Exposure 33 55 80
Water and Sanitation 29 32 34 Note: Average exchange rate S/. 3.3 soles per US$ 1 dollar. Results
includes both mortality and morbidity.
Source: World Bank (2012), “Economic Assessment of
Environmental Degradation in Peru: An update 2012”.
37
Lima downtown is one of the most polluted areas in Metropolitan Lima due to its traffic. Motor vehicles,
according to official estimates, accounts for more than 80% of total emissions in the city. 38
Miranda, Juan Jose (2007). “Impacto económico en la salud por contaminación del aire en Lima Metropolitana”.
Economía y Sociedad 66, CIES, Diciembre 2007. 39
See here: http://www.digesa.sld.pe/depa/aire_lc/lima_callao.asp. 40
World Bank (2012), “Economic Assessment of Environmental Degradation in Peru: An update 2012”.
Unpublished document. Document prepared by Bjorn Larsen and Elena Strukova.
52
Component 2
9. For Component 2, estimated benefits are related to time saved while searching
information at SINIA’s website. This represents a lower bound of total benefits because it
includes benefits associated with the intensive margin (efficiency) and does not include benefits
from the extensive margin (i.e., first-hand users due to faster search time).
10. In order to estimate the potential benefits, a short survey was carried out41
. Based on this
survey, the average search time is 9 minutes per institution and a total of 36 minutes (SINIA
includes four institutions: Procuraduría MINAM, SENAMHI42
, OEFA, and DIGESA43
).
However, after developing a platform and improving its information system, the current average
search time has reduced substantially to 5 minutes per institution and a total of 25 minutes.
Therefore, a total of 11 minutes (0.18 hour) is the estimated associated benefit per user. The
average search time saved was multiplied by the total visits/user (6 – 7 times per month), and the
total number of users. The social value of time was based on the parameters used by the Ministry
of Economy and Finance, suggesting S/. 6.81 (soles per hour) for urban areas and S/. 4.56 (soles
per hour) for rural areas.44
Table 2: Estimated search time
Total
Search
Time
(minutes)
Institutions
Before improvements 36 Procuraduría MINAM, SENAMHI, OEFA,
DIGESA
After improvements 25 Procuraduría MINAM, SENAMHI, OEFA,
ANA, DIGESA
Total saving time per
user
11
Note: A new institution was included (ANA) after the improvements of the information systems. We include its value in
the scenario “after improvements” reducing the saving time to provide conservative results.
Source: Estudio a nivel de Perfil “Mejoramiento y Ampliación del Servicio de Información para el Control de la Calidad
Ambiental a Nivel Nacional”
Results
11. Using the approach mentioned above, the US$70 million to be invested in the Project are
expected to generate efficiency benefits. Using a discount factor of 9%, the net present value
varies from S/. 135 million soles or US$ 41 million (low case scenario) up to S/. 277 million
soles or US$ 84 million (high case scenario). The internal rate of return (IRR) to this investment
is estimated to be between 20% and 30% (See Table 3 – Table 5 for further details).
41
In 2013, MINAM carry out the short survey through the SINIA’s webpage. Approximately 200 answers were
received. One of the survey’s question was the following: How long does it take you to find out whether or not the
information that you are looking for is available in this website? 42
National Meteorological and Hydrological Service (Servicio Nacional de Meteorología en Hidrología). 43
Direction of Environmental Health (Direccion General de Salud Ambiental). 44
Anexo SNIP 10, Parámetros de evaluación. MEF. Resolución Directoral Nº 003-2011-EF/68.01.
53
Table 3: Results for Low Scenario
(Discount rate: 9%, Million soles)
Year Component 1 Component 2 Total
Benefits Costs Benefits Costs Benefits Costs
2017 0.0 56.3 0.0 0.7 0.0 59.6
2018 0.0 58.5 0.0 8.4 0.0 69.5
2019 22.6 79.3 0.0 4.7 22.6 86.4
2020 45.7 24.5 15.5 0.3 61.3 26.5
2021 61.9 28.2 16.2 0.3 78.1 30.3
2022 78.4 46.9 17.0 2.6 95.4 49.5
2023 79.6 46.6 17.7 0.3 97.3 46.8
2024 80.7 27.5 18.5 0.3 99.2 27.8
2025 81.9 25.7 19.3 0.3 101.2 25.9
2026 83.1 25.8 20.2 0.3 103.3 26.1
2027 84.4 26.9 21.1 2.6 105.5 29.5
2028 84.4 26.9 22.0 0.3 106.4 27.2
2029 84.4 26.9 23.0 0.3 107.4 27.2
NPV 67 77 135
IRR 16% 74% 20%
Table 4: Results for Mid Scenario
(Discount rate: 9%, Million soles)
Year Component 1 Component 2 Total
Benefits Costs Benefits Costs Benefits Costs
2017 0.0 56.3 0.0 0.7 0.0 59.6
2018 0.0 58.5 0.0 8.4 0.0 69.5
2019 26.4 79.3 0.0 4.7 26.4 86.4
2020 53.4 24.5 15.5 0.3 69.0 26.5
2021 72.2 28.2 16.2 0.3 88.4 30.3
2022 91.5 46.9 17.0 2.6 108.4 49.5
2023 92.7 46.6 17.7 0.3 110.5 46.8
2024 94.0 27.5 18.5 0.3 112.5 27.8
2025 95.3 25.7 19.3 0.3 114.7 25.9
2026 96.7 25.8 20.2 0.3 116.9 26.1
2027 98.1 26.9 21.1 2.6 119.1 29.5
2028 98.1 26.9 22.0 0.3 120.0 27.2
2029 98.1 26.9 23.0 0.3 121.0 27.2
NPV 131 77 198
IRR 21% 74% 25%
54
Table 5: Results for High Scenario
(Discount rate: 9%, Million soles)
Year Component 1 Component 2 Total
Benefits Costs Benefits Costs Benefits Costs
2017 0.0 56.3 0.0 0.7 0.0 59.6
2018 0.0 58.5 0.0 8.4 0.0 69.5
2019 31.1 79.3 0.0 4.7 31.1 86.4
2020 63.0 24.5 15.5 0.3 78.5 26.5
2021 85.0 28.2 16.2 0.3 101.3 30.3
2022 107.7 46.9 17.0 2.6 124.6 49.5
2023 109.1 46.6 17.7 0.3 126.8 46.8
2024 110.5 27.5 18.5 0.3 129.0 27.8
2025 112.0 25.7 19.3 0.3 131.3 25.9
2026 113.5 25.8 20.2 0.3 133.7 26.1
2027 115.0 26.9 21.1 2.6 136.1 29.5
2028 115.0 26.9 22.0 0.3 137.0 27.2
2029 115.0 26.9 23.0 0.3 138.0 27.2
NPV 209 77 277
IRR 27% 74% 30%
Sensitivity Analysis
12. Sensitivity analysis was carried out to test the robustness of the previous results to
changes in the values of the following key parameters (e.g., discount factors or project cost
increments). The sensitivity analysis revealed that the measures of project worth are quite robust
to adverse changes in the key parameters.
13. Assuming a discount factor of 6 percent, the net present value increases from S/. 202
million soles or US$ 63 million (low case scenario) up to S/. 385 million soles or US$ 117
million (high case scenario). See table 6.
Table 6: Results with 6% discount factor
(Million soles)
Component 1 Component 2 Total
Low Scenario
NPV 118 99 207
IRR 16% 74% 20%
Mid Scenario
NPV 197 99 286
IRR 21% 74% 25%
High Scenario
NPV 295 99 385
IRR 27% 74% 30%
55
14. If project costs increase by 10 percent (table 7) or by 20 percent (table 8), results are still
positive with a discount factor of 9 percent. Under the most pessimistic scenario (low scenario)
and with cost increments of 20 percent, the net present value is still positive (S/. 67 million soles
or US$ 20 million).
Table 7: Results with 10% cost increase
(Discount rate: 9%, Million soles)
Component 1 Component 2 Total
Low Scenario
NPV S/.36 S/.75 S/.101
IRR 12% 69% 17%
Mid Scenario
NPV S/.99 S/.75 S/.164
IRR 18% 69% 21%
High Scenario
NPV S/.177 S/.75 S/.243
IRR 23% 69% 26%
Table 8: Results with 20% cost increase
(Discount rate: 9%, Million soles)
Component 1 Component 2 Total
Low Scenario
NPV S/.4 S/.74 S/.67
IRR 9% 65% 14%
Mid Scenario
NPV S/.67 S/.74 S/.130
IRR 15% 65% 18%
High Scenario
NPV S/.146 S/.74 S/.209
IRR 20% 65% 23%
15. Finally, results suggests that the maximum incremental cost associated with NPV = 0 is
up to 21.2% (component 1, pessimistic scenario) which suggest that the project, in total, allows
up to a 39.7% incremental cost (see table 9).
Table 9: Results with maximum incremental costs
(Discount rate: 9%)
Component 1 Component 2 Total
Low scenario 21.2% 515% 39.7%
Mid scenario 41.2% 515% 58.3%
High scenario 66% 515% 81.4%
56
Conclusions
16. The ex-ante economic analysis suggests that Project-supported investments will generate
substantial benefits for areas served by the Project, as well as substantial benefits for Peruvian
society as a whole. Overall, the NPV is projected to reach 41 million (low case scenario) up to
US$ 84 million (high case scenario), while the IRR to this investment is estimated to be between
20% and 30%. Results are robust to adverse changes in the key parameters. The economic
analysis thus shows that if Project implementation is effective and efficient, Project-supported
investments will bring substantial economic benefits to the Peruvian society in general.
57
Annex 6. Map of Project – MAP IBRD 33465R